Leasing Store Space: How to Protect Your Interests

Store location is crucial for a tackle retailer, but the language of the lease can break that same retailer. Occupancy expenses and fees associated with the lease can quickly kill profits. Thus, location at any cost is not a good location.

The landlord generally has the upper hand in lease negotiations. They do it for a living while you do it only three or four times in the life of your business. To level the playing field, you need your own advocates during negotiations. The deal you strike from day one will help you or hurt you for the duration. Therefore, be careful what you wish for . . . you may get it!

It is in your best interests to seek professional help from your attorney, accountant and business advisor. You should comment upon the entire lease, while your attorney should focus on the legal issues.  Your lawyer knows about the law, he or she may not possess good business skills. 

The landlord’s lease is written for their benefit and protection, not yours, and therefore the lease will not contain language that protects your interests. Expect to make significant changes to the landlord’s lease along with adding specific lease addenda that protects your interests. 

Similarly, the lease will contain a great deal about the tenant’s obligations under the lease and almost nothing about the landlord’s obligations.  The lease should clearly itemize the landlord’s obligations, such as the obligation to rebuild after a casualty and to carry sufficient insurance.  Also be sure the landlord is responsible for the structural integrity of the building including the roof and roof leakage, etc.

Most every aspect of a lease is negotiable, regardless of what the landlord says. If you don’t like certain language, just say “delete it” or offer replacement language. Let the Landlord defend his position versus you justifying your position.

Know your walk points (the point at which you leave the negotiations) and be willing to end the negotiations if a reasonable compromise cannot be reached. Don’t fall in love with any given location.

Before inking a deal, do some comparison shopping. Rents are a function of demand along with factors such as the health of the economy, vacancy rates, the popularity of online shopping and the space inventory available.

There are a number of lease provisions that should be demanded in every lease for the protection of the retailer, such as:

Rent abatement: Include a rent abatement provision that if and when certain circumstances exist, then all rent and other charges will abate proportion to the time you cannot operate normally as in the case of fire or other casualty, landlords repairs to the premises, interruption of utilities or other negotiated trigger actions.

Other charges: Usually there are a variety of other charges due in addition to the base rental.  These other costs include such items as common area maintenance, insurance, management expenses and a host of other miscellaneous fees. Scrutinize these charges thoroughly and make sure you have an audit provision and request percentage increase caps.

Build out: The completion or renovation of the leased premises is usually performed by the Landlord.  Who pays for this work is totally negotiable.  Most Landlord’s include a building allowance within their cost structure, therefore be sure to demand all or part of the construction allowance.  At the very least, ask for free rent to cover these costs.  Also, be very specific about build out details.

Tenant’s and landlord’s defaults: Here again the lease will contain pages of remedies in the event of a Tenant default and nothing about defaults on the Landlord’s part. Your attorney should provide such protective language.

Personal guaranties: The Landlord may want your personal guaranty on the lease. In short, don’t do it!

Out clauses: Negotiate an “out clause” which will allow you to vacate the lease if certain conditions exist such as loss of an anchor store, the center’s occupancy drops below a certain percentage or after two years of occupancy upon 90 days notice. 

Make the lease negotiations a team event (you, your accountant, attorney and business advisor). If the deal doesn’t fit your business model, don’t do it. Locations are somewhat like buses, if you miss one, another will come by shortly.