The TRIC of Lease Negotiation

I’m David Skinner, and this is the CRE Coach, where together you and I are lifting the hood on Commercial Real Estate.

I want to tell you the TRIC or T-R-I-C of lease negotiation. This formula will show you how to get whatever you want in a lease negotiation. It’s very simple. Landlords are influenced by the Term length, Rental rate, Improvements, and Credit strength of the tenant. If the Term, Improvements, and Credit, or T, I, and C are in the landlord’s favor, the landlord will flex on R, or rent. If the rental rate, improvements, and credit, or R, I, and C are good for the landlord, they will compromise on term length or T. All of the factors move in this proportion. Most landlords will give on at least one of the four, but if two or three of these factors are not in the landlord’s favor it will get much more difficult to negotiate. Let me explain.

Term

In traditional leasing arrangements, most landlords want long-term commitments and no options and most tenants want short term commitments with many options. This situation can change if there is property in a hot market and the landlord plans on redeveloping in the near future. In that case, the landlord will value a short term lease when the tenant will most likely want a longer term because the property is in a valuable location. Either way, the logic remains true. If the tenant agrees to the landlord’s desired term, the landlord is likely to give flexibility on the other items.

Rent

‍Rent is tricky. It is universal that tenants want to pay less rent and landlords want to get paid more rent. However, based on the TRIC of lease negotiations, tenants can have significant negotiating power in the base rental rate if they will give a desirable lease term, do their own improvements to the facility, and they have a strong credit history. 

Improvements

‍As you can imagine, “as-is, where-is” deals get most landlords excited because they do not need to come out of their own pockets or their investors’ pockets for this money. However according to the TRIC of lease negotiation, if a tenant is willing to execute a long-term lease, pay an at or above-market rent, and has great credit, most landlords will find a way to get the money they need to do the improvements to get the tenant in the door.

Credit

‍Now you might ask, “What kind of landlord wants a tenant with bad credit?” Well, the TRIC of lease negotiations would say that a tenant willing to give an obligation for a favorable lease term at a high rent on an “as-is” basis with no improvements could likely convince a landlord to do the deal. Granted, in a hot market when good-credit tenants are easy to find, the tenant with bad credit will struggle a lot more. However, a tenant willing to take a property with the landlord spending little to no money at a high rental rate has a decent chance of doing a deal.

You want to get everything you want in a negotiation, and if you aren’t getting it, remember the T-R-I-C of lease negotiation: Term, Rent, Improvements, and Credit history determine the landlord’s flexibility in your negotiation. Take a look at our video called “Know Your Landlord” that will help you better understand how your landlord may be motivated. 

I’m David Skinner, and this is the CRE Coach, where together you and I are lifting the hood on Commercial Real Estate.