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Renegotiating: A Critical Strategy in These Tough Economic Times
These are tough times. Unemployment is up and for most companies revenues are down. Both companies and individuals need to conserve cash. It is a time when you need to look at every contract and every deal that has been made and decide whether you really need a particular service, piece of equipment, space, or relationship right now. It may well be that a contract or deal is draining the cash flow of the company.
Tough economic times create an opportunity for renegotiations. It is important to realize that just because you want to renegotiate a situation, this is not a reflection on the quality of the original negotiation. It does not make the original negotiation a failure or wrong. It has been said that everything is always changing. When the original negotiations were conducted the financial situation of the parties involved – the amount of revenue the company was receiving and the state of the industry itself – may have been completely different than it is today. If not, there would really be no reason to renegotiate. Change is the basic reason for renegotiating anything and as an independent consultant for the last 4 years I have renegotiated everything from leases of office space and equipment to contracts for services that are not needed any more.
Again, it is important to remember that when going into a renegotiation we don’t want to judge the original negotiation. Be honest and straightforward when dealing with any renegotiation. In order to keep your integrity you need to give respect to the original deal without judging it. The only reason you need to renegotiate is because things have changed so much so that the original agreement is causing great strain on you and or your company. This needs to be expressed clearly and openly to those with whom you are negotiating.
Several months ago an old friend of mine called and told me that he was consulting with a company in Silicon Valley. The company had a lease that they could no longer afford and needed to get out of it. After many conversations with the landlord the company felt they had exhausted all the possibilities. I agreed to represent the company to the landlord. The problem was that the company didn’t want to leave the space; they just wanted to reduce its cost for a time. When the company originally leased the space the market rent was around $5.30 per square foot but now the market rate was around $2.40 per foot. This landlord had a solid contract and was unwilling to budge. Ninety-nine percent of the time landlords have the edge with a contract that favors them. Naturally the landlord wants to focus on the contract and the reasons that the client must pay according to the lease agreement. This is the history, and as long as the landlord hasn’t done something wrong the tenant must pay.
My first step on behalf of the company was to explain to the landlord, with the greatest courtesy, that when the lease was written conditions were completely different: my clients’ company was doing well, they had plenty of capital and they were in a growing industry. Now, however, the company had very little working capital, it was losing money every month and their whole industry was failing. At this point the landlord could either focus on the lease, or could Push the Refresh Button and decide to give the company some relief until they got back on their feet. If the landlord is stubborn and balks, at the very least he or she will probably lose a tenant.
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Copyright © 2003, Marc Freeman
Copyright © 2003, The Negotiator Magazine