Tips on Renegotiating Contracts and Leases

As businesses start opening up again and some sort of normalcy hopefully emerges soon, business owners and CEOs might take this time to look at their existing contracts with vendors and landlords. This could be the right moment to engage in renegotiations that can strengthen the business in the weeks and months ahead.

Here are tips on negotiation strategies and tactics to help in this potentially cost-saving process:

Be clear about what your business needs.

Entering into renegotiations without a clear outcome in mind can render the whole endeavour meaningless. Prior to discussions with a vendor, be sure you and everyone on the negotiating team has a strong sense of what’s best for the company, both in the short- and long-term. Consider all the possible outcomes and how they align with your overall strategic plan. This will help crystallise your thinking and help guide the process along.

Enter negotiations within an agreed-upon framework.

Because of the widespread negative impact of the coronavirus outbreak, it’s not clear who has any advantage in client/vendor negotiations. Both parties have a lot to gain and a lot to lose. But since you hope to establish new parameters with third-party suppliers, don’t go into talks with the goal of undermining or exploiting the other party. There has to be mutual respect for negotiations to succeed, which will then help create a framework for negotiations that will serve everyone involved.

Don’t overlook incentivising the other party.

Renegotiations can’t be a zero-sum game. Attempting to gain all the advantages without giving up something in return will harm the vendor/supplier relationship that’s so important to your business. Options for incentives include:

  • Purchasing additional products or services in exchange for a new long-term contract
  • Offering to refer the vendor to other businesses

Be prepared for the possibility that talks will fall through.

It’s always possible that renegotiations will fail, so it’s important to be prepared. Entering into talks “without knowing what you’re going to do in the unfortunate event of an inability to come to agreement is tempting catastrophe,” notes the online business news source SSON. After all, if things do break down, “you have to make sure the integrity of your current operation isn’t endangered” while you seek out other vendors.

This may also be an appropriate moment to renegotiate leasing or renting arrangements for your business’s physical space. Here are some tips:

Understand your landlord’s perspective.

These are difficult times all around, so it’s important to understand where your landlord is coming from, before and during a lease renegotiation.

Understand that “many landlords are worried that opportunistic tenants who do not need help will try to take advantage of the current situation and ask for rent reductions,” notes Harvard Business Review. Persuading your landlord “that this is not the case for you is a good starting point for a discussion.”

Have a solution ready to propose.

If, for example, your business has been significantly affected by the pandemic, you may desperately need to restructure or otherwise renegotiate rent or lease terms. But telling your landlord you can’t afford to continue paying for space is a clear deal-breaker from their perspective. Before taking that route, consider options you can propose that keep the relationship intact, i.e.: paying a lesser amount each month (on a temporary basis) or subletting part of your company’s space for additional income.

Efforts to renegotiate contracts and leases can benefit both you and your owners or landlord. But this will only work if there’s a clear “win-win” resolution involved.