After an initial 7 year term, Emco’s lease was coming up for renewal in Kitchener, ON. The location was good, the building met the needs of the operation and the lease provided for a 5 year renewal option. On paper, it seemed like a straight forward process however, market rates for similar space had risen dramatically over the previous 7 years and the branch was potentially facing a significant increase in rent which would erode profitability. Furthermore, the landlord was not willing to execute any work on the premises as part of the renewal and the lease itself contained a number of provisions which were either ambiguous or unfavourable to the tenant.
Savvy to market conditions, the landlord knew that Emco would have trouble finding a relocation site and at face value, there seemed to be no potential leverage for Emco to lean on in the negotiation.
Emco engaged Landmark to represent their interests in the renewal negotiations.
The first step taken was an in-depth lease review, which quickly identified six problematic areas. It was also uncovered that supporting documentation for annual reconciliations was not being provided to Emco, nor was the landlord required to provide it per the lease. This was a significant red flag for Landmark as landlords often use Additional Rent as a hidden profit center by charging tenants for expenses that are not in fact recoverable under the lease.
While the market did not have any suitable relocation sites, Landmark was able to create an advantage in the negotiation by leveraging Emco’s existing network of locations and using the threat of consolidation as a means to create uncertainty in the eyes of the landlord. This was the first time that the landlord understood that they may lose Emco if they were not willing to negotiate reasonably.
Landmark was able to negotiate a net rent of $1.00 (or 12%) per sqft below the landlords opening offer and secure a contribution from the landlord towards leasehold improvements required in the space. Additionally, the lease itself was renegotiated to remove unfavourable clauses and add clarity where required, including an obligation for the landlord to provide supporting documentation with the annual reconciliation. Not only was Emco’s tenancy secured at a below-market rate, but the lease was made more favorable which will result in future cost avoidance.
Landmark created a competitive environment by leveraging their expertise and deep knowledge of how landlords negotiate, to the benefit of Emco. They looked beyond the base rental rate to bring value to several areas of the renewal negotiation and lease. Landmark’s fee for the transaction was paid fully by the Landlord.