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Monday
Jan052015

HOW TO ASK FOR A RENT CONCESSION

This article, by Dennis Kissman, was published in Marina Dock Age –  May/June 2013

 

Is your marina governed by a lease or concessionaire agreement from a governmental or quasi-governmental agency or possibly a private entity? If so, be sure you know the financial condition of your own business before you start complaining you cannot make your lease or concessionaire rental payments. Recently, we have been involved in two situations where the marinas had land leases with governmental agencies. Both marina owners used the current economic conditions as the reason why they needed a rent concession on their leases. One of the leases has been resolved with a reduction in rent, while the other is still pending. In our opinion, both clients have justifiable reasons to request rent reductions because of the impact of current economic conditions on their businesses. But how they justify their reasons for the reduction can make the difference in the outcome to their request.

Lowering Your Rent

If you are in a similar situation and considering approaching your “landlord” for a rent concession, whether it is a governmental agency or private sector owner, here are a few tips you may want to consider:

Relying on media hype about the economy, high unemployment or the weather, as a basis for your request, sounds like an excuse and weakens your argument. These are all factors that may contribute to your situation, but if you do decide to use any of them in your argument you must make them specific to your operation and customer base.

Statements or specific claims must be supported with facts. For example, lake levels are down and 30 of my previously occupied slips, which represent 20 percent of my total slips, cannot be occupied because of the low lake levels. Statements based on your opinion or hearsay are only going to weaken your argument.

When you make a broad statement, such as, my business is down because of the economy, be prepared to answer the next question; how specifically has the economy impacted your business? For example, you could address the situation like this: the Fourth of July holiday period represents about 30 percent of the marina’s fuel and store sales for the entire season. For the last two years with the sluggish economy customers have not use their boats, despite the good boating weather. As a result, store and fuel sales, which normally represent 10 percent of the marina’s total profits, have reduced the marina’s annual Net Operating Income (NOI) by $25,000. Making a statement like that gives the landlord or government agency the confidence that you understand what impacts your business.

Records

Make sure that your financial records properly reflect what is happening in your business. Most importantly, maintain consistent records. The quickest way to lose creditability is to have continually changed how you record specific revenues or expenses. For example: one time you code a utility hookup fee as revenue and then another time it is offset against utility expenses. This does not impact your bottom line. If you are making an argument that your utility costs are up, it is difficult to justify, when part of the time you code the reimbursement as revenue and other times as a reduction of expenses.

Where important trends can be established, accurate historical records relating to finances, occupancy, weather information, will help you justify your request. For example, if you can show that there was not a revenue problem before the current issue arose, whether it is the economy, water levels, weather or any number of other issues that are impacting your profitability,  it will increase your creditability. The longer that you can go back, the more creditable your argument will be. It has been my experience that trends are cyclical and we can learn from the past to shorten any downturns that impact your business, Make sure the adjustment you are requesting is the reason for your financial problems. I mentioned earlier that we were involved in two requests for rent adjustments and one was granted and the second is pending. The problem with the pending request is that the record keeping is not the most diligent. Also, a quick review of  the marina’s records showed that if it did not have to pay anything for the lease agreement with the agency, it still would have lost more than $50,000 last year. Granted, the lease terms are a problem and need to be addressed, but before you ask for some concession in your payment terms, make sure that you have a viable business plan that can be supported with facts and data.

Be Prepared

If you expect a rental concession, know the details and history of your business before you ask. The people that will make a decision on your request may not know your marina, but they probably know how businesses are run in general. Whether you are talking about marinas or carpet cleaning, business logic applies universally, in many cases. Show them you understand your business, and they’ll have confidence that you know what it needs to improve.

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