RETAIL SPACE FOR YOUR BUSINESS
Without Going To The Cleaners
by Jeff Richards
Leasing space for your business can be an intimidating
experience. For business people taking this step for the first time, this commitment takes a tremendous amount of confidence that can be likened to jumping off a cliff. You will always be asked to personally guarantee so no matter how much other
protection you have set up, such as incorporating your business, etc., you will still have a lot to consider.
Here are some tips for making the process as painless as possible:
ASSUME THAT ALL LEASES ARE NEGOTIABLE.
All retail leases are
written by attorneys with the purpose of protecting the landlord.
Never sign a lease without negotiating terms and having it
reviewed by a competent attorney.
part of the process is agreeing upon the key point terms such as
price per square foot, adjustments for cost of living, lease term,
deposit, options to renew, options to sublease, construction time
(without paying rent) and construction allowance. (If you have lots of leasehold improvements that will make the property more valuable to the next tenant, as all leasehold improvementsare retained by the landlord; then, frequently, you can get money from the landlord for this, sometimes up to $10.00 a square foot or more).
you agree to the key points of the lease, then the detail of the
rest of the lease is still a lot to go through, and if you don’t have many of your own changes and additions, you probably have
not understood the terminology or gone through the document completely
with someone like an attorney, who will understand it and be able
to advise you.
The more open space you see for rent in
your community, the higher your chance is of negotiating many terms
in your favor. The more open space for lease the
landlord owns, the more negotiating power you have.
Beware of Common Area Maintenance fees and estimate them high in your rent package. Get the current estimate in writing. These are estimated and paid on a monthly basis with your rent and then reconciled at the end of the year. If the estimate was not correct, you are then billed the difference when the year is over. Beware and plan ahead because landlords frequently don’t estimate well and technically you will be in default of your lease if you don’t pay the yearly adjustment bill when it is presented. A good way to check the landlord’s track record of estimating correctly is by asking some of the existing tenants.
Hiring a professional negotiator to negotiate the lease terms you will need generally pays for itself many times over. This should
be done in conjunction with having a competent attorney also review your lease.
If you don’t use a negotiator to assist you, then taking some time to brush up on common techniques for successful negotiation can still benefit you greatly.
friendly, easygoing nature and attitude of the leasing agent and
the landlord may not stay the same once the lease is signed. Even
in the rare case that it does, landlords frequently sell their commercial
properties, so never ever count on having anything more than what
is actually written into your lease. By the way, if
the landlord does sell his property, it will be reassessed immediately
with higher property taxes (unless property values declined) and
that means that the common area maintenance charges will also rise,
but probably will not be adjusted until you get a surprise bill
at the end of the year.
If you are counting on
being able to sublease if you leave early, consider that this does
not relinquish your responsibility toward the lease until the term
is finished. You will still be the guarantor and be liable if the new tenant stops paying, or if they become behind in their payments. Your ability to secure credit for another lease, or something else you might want to purchase on credit, may be severely limited by this other obligation until your original term has expired.
Most landlords will require a deposit at the time that you sign your lease. This can often be a substantial amount of money to tie
up for a long period of time. Ask for all or half
of the deposit back after you have a history of paying your rent
on time for the first eighteen to twenty-four
months on a five year lease, or half of the term for something shorter.
2015 UPDATE: Both the economy and the risks involving any commercial
business have really intensified over the years. The costs of goods in many industries have escalated to record levels
and that means that margins are shrinking. Typical product mark ups are getting squeezed and the typical costs of labor
have escalated, leaving business owners with challenges rarely seen in history. It takes a lot of risk and a lot of
strategic planning to be successful. Make sure you take the time to accurately project costs and revenues before obligating
yourself with any lease and contract. Even the most skilled and experienced industry experts often over-estimate projected
sales and underestimate expenses, so please, please be careful and get lots of professional industry advice for any new endeavor.