How To Negotiate Better Terms For Your Lease Agreement
Even during boom times, the most successful business is always looking to achieve ultimate value and not just resting on their laurels.
From getting suppliers to sharpen their pencils during tender negotiations to improving the productivity of employees by executing a perfectly balanced bonus scheme (as in, one that helps encourage the completion of work to maximise income to the business whilst ensuring staff enjoy the benefit and are also left happy and rewarded too). How to negotiate a lease agreement to achieve more value might only be given a glancing thought, however.
Yet, in these uncertain politico-economic times, heightened by the fact we are statistically due another economic downturn or recession, finding previously hidden value in your company’s finances is a smart play. It will help to shield you from the impact of a leaner economy, be it a result of sluggish trade post-Brexit or a Trump-Putin induced downturn; and if the worst doesn’t happen, your agreements will be optimised anyway. It’s a risk-free move with real reward.
Moving to a lease negotiation tactic that you can employ for your business, take a look at these three-different lease agreement improvement ideas to help achieve better terms and add more value to your bottom line.
The Golden Lease Negotiation Tactic
Remember that the lease provider is the one who is potentially stuck with a capital-filled and difficult-to-move asset. If an agreement cannot be formed with yourself, the provider needs to go to market and find another potential lessee and start the negotiation process all over again. All the while, the asset is sitting there in effective quarantine, not recouping any income for the owner.
Be confident. Hold your nerve. Understand that a bit of asset related pain during the negotiation process – be it a costly short-term hire charge from another party or some downtime whilst you confirm the agreement’s particulars – can result in a much more beneficial agreement in the long term.
A lease provider will want you to sign in to as long an agreement as possible because this means maximum income is attained and their asset is taken is employed for its useful life. Use this to your advantage by getting the terms as much in your favour as possible. Work out the sweet spot between the length of agreement and lower payments – you don’t want to be tied into using an asset which is old and worn out, but you also want to have favourable payment terms.
Negotiating A Lease Extension
When you’re mid-term in a lease agreement, it’s worth seeing if you can negotiate an extension to the agreement. The lease provider should more than welcome this because it delays the problem of what to do with the returned asset and in some cases, realises their residual investment in the asset.
Bear this in mind if they offer you a simple extension of time and don’t offer a negotiation on payment terms.
In crude terms, you’re doing them a favour more than they are to you by extending your agreement. You should be rewarded financially for this.
And A Tip For An End Of Lease Negotiation
When it comes to the end of a lease agreement, you might well find that an alternative provider can offer you a superior package to acquire the use of a superior asset to the one you’ve just finished an agreement on.
Perform all the proper due diligence and comparison checks that you would when purchasing an item or going into an agreement with a new provider. In short, don’t just take outstanding prices and agreement terms at face value, but dig a little deeper.
Take the offers from alternative providers to your existing lease provider (or at least the facts and figures from them), let them see the state of the market and see what they can offer you.
When it comes to negotiating your way out of a lease agreement and ending ties with your old provider, be ready for a tough negotiation. As mentioned in the opening golden tip, the asset owner and lease provider does not want to be stuck with a redundant asset and in the market for a new lessee. They will want to protect their position and retain you as a lessee.
Make sure you can document all servicing and repairs, show you have met your terms and conditions and, most importantly, all your payments.
Being prepared and keeping all your lease related documentation and records organised is the key to a successful mid-term or end of lease negotiation.
There are pieces of software available to help you do this.
Get Further To Grip With The Basics
Of course, negotiating a better lease agreement isn’t the be all and end all when it comes to improving your company’s finances. It’s only one aspect of your financial playbook. The fact you’ve sought out advice on how to improve a lease agreement and are looking for lease negotiation tips, however, shows that you understand leasing is vital to financial performance and leasing is changing.
The lease accounting standards are being altered and the changes come into effect on January 1st 2019. But the work needed to get up to speed is enormous and should be well underway by now.
That said, leasing is still a massive opportunity for your business to improve the way it acquires its assets and manages its cash flow.
Find out more about how leasing can help your business by getting to grips with the basics of leasing in our free download: