Whatever the reason you’re pursuing leasing, be it to secure your new office location or to upgrade your company delivery vehicles or IT equipment etc, it’s understandable that you want to know the best way to negotiate a lease.
Here are 15 tips to follow which will ensure the leases you negotiate over the coming months are weighted in your favour, keeping your directors and the board happy.
Here are the top tips and click on them to jump to a more thorough explanation:
- Know your numbers
- Know their numbers
- Stick to what you want
- Prioritise whole agreement numbers over termly payments
- That said, keep cash flow under control
- Compare providers
- Find your leverage
- Research their inventory and previous agreements
- Choose your negotiator(s) carefully
- Be smart with your timings
- Consider holding the lease elsewhere
- Talk about break clauses and other flexibilities
- Examine the end of agreement particulars
- Check the asset’s history
- Be ready to go elsewhere
Approach your lease negotiation as though you were purchasing the asset outright. Make sure you have accounted for the full spend associated with the lease and its asset and aren’t approaching the negotiation table with only the periodical payment amount in mind.
One of the main attractions of utilising leasing as an asset acquisition method is the ability to gain control of high-value assets without the associated high-value commitment. But focussing on the monthly/quarterly payment value entirely will leave you frantically trying to work out what of the other numbers you are being asked to negotiate are affordable.
That’s where knowing the full associated costs of the lease agreement comes in.
As part of your negotiation, be sure to receive the full and clearly itemised list of charges which will form part of your new lease agreement. You and your team should identify actual charges to pay on top of the periodical rental payments - a higher initial rental or refundable deposits, delivery and collection charges and so on - and also the full value of any potential charges - such as above-agreement usage charges or accidental damage.
Be sure to know which insurance covers, policy drafting or other administrative charges also fall under your remit of costs. And remember that this is a negotiation, so all of these things are bargaining chips. If the provider wants your business, they will be able to show some willing.
As the negotiation proceeds, the lessor’s sales team will behave like any other sales team would and should. They will want to close your business as quickly as possible and/or achieve the highest retainer amount possible.
If your lease agreement is due to cover a number of years or has a particularly large financial value, the negotiation process could take months. Throughout this time, keep your original requirements in mind and don’t be swayed into leasing an asset which doesn’t actually meet your requirements or budget. If your requirements and budget change whilst the negotiation takes place then that’s fine, as long as it’s your side that are moving the goalposts.
From knowing what are your affordable numbers and identifying all the required payments as part of the agreement, you can then be aware of the lifetime cost of the lease. This is the number which should be at the top of your agenda, not the monthly payment amount.
If a lessor offers a hugely favourable-looking termly payment figure, for argument’s sake £100 instead of £1000 per month, there will be a catch in there somewhere. It could be extortionate damage charges or late payment fees and you can be sure these will be strictly enforced. Or it could be that the lease agreement has a large end payment or extra-long duration.
Negotiating based on the lifetime value of the lease rather than individual rental amounts is the best way to approach a lease negotiation.
However, it’s important not to ignore cash flow goals by negotiating payment amounts with cash flow concerns in mind. It might be worth committing to an extended agreement duration if it lowers monthly rentals because you know that away from this negotiation two major contracts, filled with further opportunities, can be won if you have the asset and everything in question in your armoury right now.
Also, things change from quarter to quarter and year to year. Having a manageable rental amount to pay each period will at least make managing other, less predictable strains on cash flow easier to bear.
Follow the age-old rule of comparing at least three different quotes when negotiating your next lease agreement. As said, the best way to negotiate a lease is to treat it as though you’re purchasing the asset outright.
Compare whole agreements costs, durations, rental amounts and payment schedules, and don’t forget to compare the qualities of the assets on offer too.
Just as when you are negotiating a final account, a project dispute or even an employee’s pay rise, to be successful you need to find your leverage.
When it comes to negotiating this lease agreement, find the leverage within your position. It could be that the asset is highly specialised and lessees don’t come around very often. Or you’re prepared to sign an exceptionally long agreement because you foresee the asset still being valuable to your particular needs for years and years to come.
Whatever your leverage is, use it.
And if you are struggling to find what natural leverage your own set of circumstances creates, go and find some. Speak to friendly companies about what successes they’ve had in recent lease negotiations, whether with the same lessor or a competitor. Investigate the provider and deduce in which areas they will feel exposed.
They might have a number of tenants recently leave properties and move elsewhere or have lost a high-profile client and have capital tying assets on their hands. Scenarios like these aren’t things which the other side will readily tell you unless pushed but are easy enough to find out through industry news and by asking a few questions.
Though you might be a great fleet manager or finance director or have years of experience in procurement, the rep at the lease provider is proving a tough nut to crack. Or perhaps personalities have the potential to clash.
Either way, select the right person for this particular negotiation to take the lead when it comes to finalising the agreement. Does somebody have a mutual connection which could hold sway? Use it. Did somebody really strike a chord at a networking event a few years ago and get along with the other party? Get them involved.
And don’t be afraid to turn some of the old sales tricks back onto the lease provider. Bringing in a very senior figure at the eleventh hour to “see it over the line” can be a smart power move if executed right.
But that relies on being smart with your timings. Negotiation tactics like the one previous come from experience as does knowing when to approach the lease provider in the first place.
If you’re happy with waiting and are in no real rush, it’s worth seeing if you can catch a good deal at the end of a month or year-end which would help the provider hit their revenue target. If they aren’t providing a strong enough offer, you can just sit it out.
For the largest value assets and agreements, it might be worth investigating the lease being held by one of your other companies or divisions. This can ease any cash flow or accountancy issues and the threat may help ensure you don’t miss out on a timely offer from the lease provider as a result.
Be sure to explore and negotiate all possible flexibility options. Circumstances and technology changes, so what happens when either or both of these things happen mid-agreement needs documenting from the outset. Agree on any penalties or discounts which can be enacted depending on whether needs or assets change (for example, a new model being released onto the market might result in lower rental payments).
A common mistake when it comes to negotiating lease agreements is not paying enough attention to or being too trusting about end of agreement terms and conditions. As we’re sure you’ve heard about in your private life, it’s easy to get penalised heavily for things like excess mileage charges on a vehicle or exceeding “general wear and tear.”
If you are using an asset for 18 months, two, three or five years, then “fair use” can become pretty subjective. Agree on parameters, notification methods and inspection dates during the negotiation of your agreement.
Here is another piece of advice which isn’t always followed until you’ve fallen foul of not doing so. Where possible, look into the history of the asset and see that it has been used responsibly. If there is any doubt, insist on a third-party assessment of the asset and let the cost of this form part of your negotiation.
The ability to walk away and find another provider is always the ace up your sleeve when you’re the one doing the “buying.” Make sure you don’t tie yourself into using just one provider because once this is known, you might as well have not negotiated in the first place and saved yourself all that time and effort.
Have at least one other negotiation to compare ballpark figures and terms against. That way, if you can’t reach an agreement with Lessor X, you can turn to Lessor Y instead.
As the leasing industry has grown more and more competitive, providers are having to come up with more creative ways to stay economical and get ahead of their competition. This means that the ball is in their court to win your business.
Remember this at all times when negotiating your lease agreement and stick with the basic, fundamental best practices.
Get Further To Grips With The Basics
If you are relatively new to leasing in general or are in a newly held position of negotiating a lease agreement, then you might need a little help with understanding the concept.
Find out all of these things and make your lease negotiation a smoother process by using our free download: