Big box retailers, chain stores and independent retailers alike are rethinking their leases, questioning how much store space is really necessary and what fits best with a smaller budget and the unpredictable economy. Not even the industry big wigs are immune to the effects of the recession, as exemplified by Walmart’s new express store initiative. As a result, retailers are taking a closer look at the terms of their rental agreements before signing a new lease or renewing their current one, and landlords have been forced to revise their five-year lease plans.
As StarTribune.com explains, “Normally, retail landlords are looking to sign up established store concepts to leases of at least five years. This gives them the kind of long-term stability that adds value to their properties, and thus makes financing possible. But with consumers keeping a tight hold on their checkbooks, there’s been precious little growth on the retail real estate front.” Landlords, therefore, have become subject to lease negotiations customized by the tenant. If you are looking to sign a lease or renew, now is your time to cut the deal of your life. First, you must consider how much space you really need. Can you do with less? Second, you should negotiate the lease to fit your terms and today’s conditions.
Entrepreneur magazine offers a checklist of items that must be discussed during lease negotiations. Among the items are:
1) Don’t accept a lease without an inspection. An “as is” deal isn’t one you want to make. This is the landlord’s way of getting out of repairs and spending money. You should be allowed to have an inspection and terminate the lease if the results are unsatisfactory. The only other way around this is if you have the landlord agree and represent the premises as, “in compliance with all applicable laws, rules and regulations.”
2) Check the “use” clause. It is best if the “use” clause is flexible. While the initial usage description must be approved by the landlord, you’ll want to add, “and related goods and services,” to the initial description, so you don’t need to ask for permission every time you add a new product or service to your inventory.
3) Get a “rent free” use period. No sense in paying rent until you have the store up and running. Therefore, be sure to ask for a 30 to 60 day window rent free, in order to set up displays, fixtures and move-in preparation for your grand opening.
4) Take a look at previous tax and utility bills. This step is about budgeting. Most leases are “triple net,” requiring you to pay your percentage of the landlord’s property taxes and utility bills in addition to rent. You and your bank account want to be prepared for the payments ahead.
5) Don’t sign without a “noncompete” clause. The last thing you want is to be situated in the same location as a competitor. As long as you meet all terms of the lease and pay your rent on time, the landlord shouldn’t have a problem with this.
6) Limit your liability for early termination. The landlord doesn’t care about the failure or success of your business: He or she only cares about the rent coming on time and being paid in full. As the economy is volatile, it is crucial to ask the landlord to cap your liability at one-year’s rent, in case your business is forced to close before the lease expires.