Landlords and small business tenants, you are both in the same boat, pull together for success. Here is how.

Landlords and small business tenants, you are both in the same boat, pull together for success. Here is how.

There is a tug of war going on, between landlords and their small business tenants, and it is a war with few winners and many losers. However there is a smarter way to create a win-win situation, in this difficult and challenging economic downturn supporting success for both, if you work together. Oppose one another and both lose.

From the landlord’s perspective, the small business tenant signed a lease, probably with a personal guaranty by the owner; the landlord has mortgages and overhead and is unwilling or at least reluctant to negotiate a reduction. Why should he, he querries? We have a contract with a personal guaranty, it is what it is.

The small business owner confronted with significantly reduced revenues is confronted with a difficult decision, pay unaffordable rent, soon resulting in going out of business or shut his doors and either move to another location and fight his personal guaranty which is probably worthless at the moment or go out of business. Given the high cost of moving, such a situation frequently results in his closing the doors, a total loss to both landlord and small business owner.

The landlord loses a tenant and the small business owner loses his business. No one wins. Can the landlord recover by renting again? Maybe, but after how long and how much loss?

My recommendation. The landlord should convert his rent to a percentage of sales formula. Low enough to be affordable, high enough to be worthwhile and thus, when the business has good months the landlord makes more than usual and when the business tenant has bad months the landlord gets less but it is affordable so the tenant can remain in business and still pay an affordable amount. Everyone gets to stay alive for a better day.

This keeps everyone in business, everyone shares the risk, the loss and the gain, but everyone remains with cash flow. There can be time limits, escape clauses, all sorts of guidelines and parameters, but in the end it works without the small business failing and with the landlord having a positive cash flow over time.

Try it, it works and is a better idea than forcing losses on both. We are always better off if we work together to solve problems than approaching such situations with an ‘all for me’ attitude…it never works.