What If The Landlord Is My Friend?
Commercial real estate negotiations are tricky, sophisticated and often times clouded with terms and conditions that are confusing to most healthcare providers. Negotiations are competitive enough with the simple fact that the two parties involved have competing interests. The tenant wants the lowest lease rate with the highest level of concessions, whereas the landlord will push for the highest lease rate and lowest amount of concessions they can get away with. What complicates this process further for many healthcare tenants is when the landlord has become more than an acquaintance—maybe even a “friend” or a “patient.”
In the game of commercial real estate, one of the landlord’s winning strategies is to leverage their position by becoming patrons, clients or patients of their tenants. This savvy approach provides them an obvious reason to support their tenant’s success, frequent and inspect their properties, and most critical to their own success, to blur the lines of whose side they are really on when it comes time to negotiate the next lease.
This is not to say that a landlord has bad motives and isn’t a genuine friend. Obviously, they could be. But at the end of the day, friend or not, patient or not—landlords must protect their own interests, livelihood, profits, business partners and family in the same way that healthcare practice owners must.
Whether a landlord is your patient, a golfing partner or just sends you a Christmas card, your friendship must be filtered through the competitive landscape of the negotiation game itself.
To enter negotiations confidently, while avoiding stumbling blocks, there are a few things you should consider:
1. Evaluate Your Friendship With The Landlord
You could say there are three types of friendships.
Friendships For Utility: These are casual relationships based on each party helping the other in some way. Most business friendships fall in this category as they’re purely for networking and mutually beneficial business gain.
Casual Friendships: A more personal relationship where each party genuinely enjoys spending time with the other. They can exist solely around shared interests and don’t need business interaction or incentives to survive. However, once the shared interests come to an end, often times so does the recurring interaction or friendship.
Friendships For Life: These relationships function on a deeply personal level. Changes in life circumstances, hobbies, location, career, etc. do not impact the longevity of these friendships.
Most business relationships, and specifically landlord-tenant friendships, are those of utility – mutually beneficial for business. To evaluate your own landlord-tenant relationship and what it’s worth to you, consider this very simple litmus test:
How much money would you give your landlord—not a loan but free and clear with no obligation to ever pay it back, if they needed it for personal reasons? $100,000? $50,000? How about $50? Most people wouldn’t give thousands of dollars to a family member without expecting it to be paid back, much less a friend. Have you ever considered that agreeing to less than favorable lease terms could be the same as giving your landlord tens to hundreds of thousands of dollars for no good reason?
2. Recognize What Your Friendship With The Landlord Could Cost
The reality is that when a friendship with a landlord (no matter what type) becomes a prohibitive factor in negotiating a lease, the tenant is at great risk of giving away free money (often tens of thousands of dollars). A relationship between a landlord and tenant becomes prohibitive and costly when the tenant assumes any of the following of the landlord just because of their “friendship” or “patient relationship”:
- That they’ll automatically receive a below market lease rate
- That the landlord will offer aggressive or generous concessions
- That the landlord is looking out for the tenant’s interests
- That the lease renewal option in the master lease is fair or competitive for today’s market and doesn’t need to be negotiated
- That the terms secured on a handshake agreement are sufficient and there’s no need to otherwise document them in a fully executed lease
- That a month-to-month lease would be sufficient enough to guarantee any future occupancy or terms
- That they won’t be evicted or replaced by a new tenant
- That there’s really no need to use a broker to negotiate a new lease or a lease renewal
- Or that there’s no need to use a lawyer for lease review
How to Win in Negotiations and Maintain Your Relationship
The most proven and professional approach for a healthcare tenant to achieve his or her objectives, avoid being taken advantage of, and maintain a good relationship with the landlord is to hire an experienced healthcare real estate agent for representation in a lease negotiation.
An agent can help by competitively procuring lease terms from other viable options in the market and create a posture for the tenant that incentivizes the landlord to sharpen his or her pencil on terms. This is in stark contrast to when a landlord knows the tenant won’t move and therefore has no reason to offer any concessions or to lower the lease rate.
But this is where the internal conflict exists for many tenants. Some tenants believe that involving a broker could backfire by irritating the landlord, hurting feelings, or causing a landlord to feel disrespected—resulting in worse terms created out of spite.
These beliefs are rooted in fear, not reality. Professionals and friends alike can and should engage the support of experts to handle their business. It’s not an insult to a relationship. In fact, it protects the relationship by keeping the tenant and landlord at arm’s length while negotiating and creating a buffer for emotions that could be damaging to achieving the best possible outcome.
This is not to say that a landlord won’t use emotional manipulation to intimidate a tenant. Many landlords do, and when doing so, their hope is that the tenant is too uncomfortable to bring in an expert advisor who can show what other competing properties are willing to offer, what it looks like to achieve the most favorable terms, and most importantly, how to avoid being taken advantage of. Additionally, when an experienced agent has the market data to back up the requests being made on behalf of the tenant, it often removes the landlord’s emotions from the negotiations, as they know at that point they have to be competitive.
Friendships between tenants and landlords do not have to disintegrate during negotiations. And they don’t have to expose tenants to vulnerabilities. If the negotiation is handled professionally and respectfully by a healthcare real estate broker, the process should not fracture any relationship with the landlord. And if it does, then the landlord likely was never a friend to begin with.
In conclusion, remember it’s more important to protect your interests and future profitability than it is to cater to the feelings of your landlord. There is nothing wrong with wanting to achieve terms in your favor, in the same way as the landlord wants terms in their favor. The way to respect the relationship and avoid costly mistakes is to hire representation to serve your interests throughout negotiations.