Renegotiating Rental Agreements

This summer as we packed our bags and left our rented flats for what was supposed to be a “two-week vacation” from college, little did we know about the looming pandemic. As we hop from Lockdown 1.0 to Lockdown 3.0 and now onto Unlock 1.0, the question which looms large on our minds, perhaps on everyone’s, “When will we get to go back?”

The question ispoignant for reasons more than one. In the face of rising uncertainties, what remained constant was our rent, now for a flat left to be vacant for the foreseeable future.

This was a problem not just faced by us, students, but several other renters which included people who either lost their jobs due to the pandemic or were furloughed. It also engulfed businesses which were made to shut shops, and some, for the foreseeable future, would not open. The pandemic, sparing no one, also affects our landlords and thus from this mutual concern we derive our opportunity.

We renegotiated the rental agreement with our landlord, bringing down the rent by an effective 40%. This article helps you negotiate your rental agreement using the recourse of ADR (Alternative Dispute Resolution) techniques just like we did.

Every silver-tongued persuader and artful dealmaker before going into a negotiation arm themselves with information. Negotiation is the key concept of ADR, and two of its fundamental armours are BATNA and WATNA.

Before going on the negotiating table every party must be aware of their BATNA and WATNA. This helps an individual tread carefully while negotiating and more importantly know where to stop and agree or otherwise.

BATNA

BATNA refers to ‘Best Alternative to a Negotiated Agreement’. It means the next best arrangement you land upon if the agreement you wish to negotiate fails to materialize. Knowing your BATNA is crucial because it enables you to understand your negotiating position better, helps you understand the opposite party’s position, and tells you when to stop and agree or stop and leave.

Suppose your rent is 50k a month. Due to the pandemic, you are not in a position to pay. You wish to negotiate the rent down to 35k. However, your Landlord refuses to budge. There remains no scope for negotiating the rent down. In this case, your BATNA may be adjusting your payment plans, devising a deferred mode of payment till the situation improves while sticking to the current rent level.

To understand your BATNA, you must invest in information. You must be aware of the going rates of your area, the market situation in terms of demand and supply, and most importantly your landlord’s financial situation.

WATNA

WATNA refers to ‘Worst Alternative to a Negotiated Agreement’. It means the worst arrangement you can land upon if the agreement you wish to negotiate fails to materialize. Knowing your WATNA is crucial because it enables you to understand your negotiating position better, helps you understand the opposite party’s position, and tells you how hard to bargain and when to stop.

Keeping in mind the earlier example, your WATNA maybe to break your lease and shift places altogether where you find more comfortable rental spaces.

As goes for BATNA, to understand your WATNA, you must invest in information. You must be aware of the going rates of not just your area but in close by areas as well, the market situation in terms of supply and demand, and your financial situation.

Negotiating

Negotiating procedure may slightly vary for commercial leases and residential agreements but the skeletal structure remains the same.

Before beginning with negotiation, you must be able to answer the following three questions:

  • Why you are asking for renegotiation?
  • What plan do you have in mind?
  • How do you plan on approaching your landlord?

Why?

The foremost question which you must be equipped to answer with conviction is why you are seeking a renegotiation? The answer, though might be obvious, must be carefully crafted since like a job interview, you have to convince your landlord of the genuineness of the situation.

The reasons could be several ranging from closing down of business with no foreseeable opening insight or a job loss due to the economic crisis or you are furloughed without pay. You must have documents ready and sorted reflecting your state of affairs and your inability to continue with the present rental arrangement. This builds a sense of responsibility towards you and your landlord perceives you more trustworthy.

The other critical aspect of this is what you are planning to do to fix your situation? This must also be conveyed to your landlord. Formulate a comprehensive plan to turn things around and then go to your landlord and explain your situation.

Plan

The formidable task is knowing your BATNA and WATNA. First must be the arrangement you seek, followed by the variations you are willing to settle on. While renegotiating a rental agreement what is crucial is to understand that rent is not the sole component of negotiation. You have several bargaining chips:

  • Rent amount
  • Structure of payment of Rent
  • Payment of other charges like CAM charges, maintenance charges, taxes etc. (especially for a Commercial Lease)
  • Duration of lease
  • Rate of appreciation

What might seem like the fulcrum to you (rent amount) might not be for your landlord. For your landlord, the longer duration of the lease might be more important or the payment of other charges (aforementioned).

You must never go to the negotiating table one dimension. If the rent amount becomes hard to negotiate on, you must move forward to other components like a reduction or non-payment of other charges, or changing the structure of payments from monthly to quarterly, or delaying the lump sum payment and deducting from the security deposit.

You must equip yourself with information about the rental rates in the market, the current relation between demand and supply of spaces, the financial position of your landlord. You must speak with brokers and get quotes about other properties. Your landlord is much more likely to ball if they know you are looking elsewhere. Besides, this helps you assess your situation better and understand your BATNA and WATNA. 

How?

There are two key components of this aspect:

  • How to approach your landlord?
  • How to effectively communicate?

Approach

The mode of communication you choose to approach and converse with your landlord is vital. Though the mode of communication varies depending on whom you are communicating with. If your landlord is a large company which owns several different properties, then the best mode to approach would be through an email. This ensures that your request is passed on to the right department and would be adequately dealt with. It also gives the surety of everything being in writing. On the other hand, the mom-and-pop landlords might be different. For them, a better approach would be having a face to face discussion be it over in person or through the multitude of video calling platforms. You might drop in an email or message and setup a convenient time for a phone call or video call.

Communicate

As stated earlier this pandemic is a mutual concern which also translates to thatyour landlord is suffering too. Therefore, be polite and do not resort to threatening language. But you must be assertive and clear in stating your position.

As discussed, you may start by disclosing your current inability due to the prevailing situation, propose a plan and then state the steps you would be implementing to fix your situation. This would give your landlord a holistic view of your situation and meanwhile you may also assess their receptiveness from their responses.

As we discussed, negotiating should not be one dimensional. If your demand for lesser rent is not exactly met, you may offer for a longer lease period. Finding a new tenant is always costlier. A longer lease, therefore, may appeal better to your landlord and they might even reduce the rent in exchange for it. Furthermore, you may let the rent unchanged but get a reduction in the payment of other charges like Common Area Maintenance, taxes etc. which might have a greater bearing in the longer run.

What cannot be highlighted enough is to reduce whatever arrangement you both agree to should be reduced in writing.

Online Mediation

Another approach, especially if you have a commercial rental agreement, is to resort to online mediation. It is a process where a neutral mediator, facilitates the parties of a dispute to find a mutually acceptable solution. The typical form of mediation requires a venue where the process will take place and physical presence of the parties involved and the mediator. But in times of this pandemic, where physical contact must be as restricted as possible, online mediation comes into play.

Though such a method is not advisable in case of residential agreements where it is advisable to have one to one conversation with your landlord. 

Authored by:
Prakhar Dixit, 
Managing Partner Sync Legal and Kanishka Shankar, 
Intern Sync Legal

 

Tags :
Guest 
on 23 November 2020
Published in Legal Documents
Views : 294
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