Retail Leasing: The Tenant Prospective
From small Mom N' Pop stores to giant national chains operating hundreds of stores, the great majority of retailers lease the space they occupy.
Retail activity is a very dynamic and somewhat fluid sector of the local economy. It follows growth and responds to changes in population, employment, income and traffic patterns.
At any given point, a variety of retailers are looking for new space. These will include:
- New business start-ups.
- Regional or national chains wanting to enter a market for the first time.
- Existing stores looking to expand, down-size, improve location, or get better economic terms if their current lease is ready to expire.
Regardless of the scope of the assignment, a lot of time, energy and potentially a lot of money can be saved if a professional realtor who specializes in commercial real estate is contacted before beginning the search. The first question is always: "What's available?" A commercial broker can help cut through the maze of options by focusing on your specific needs and matching the appropriate properties in the market to satisfy your criteria.
Once satisfactory locations are identified, a commercial broker can also represent your interests in negotiating lease terms with the landlord prior to the preparation and execution of the lease agreement. Take the approach that everything is negotiable.
Rent and Charges
This is usually quoted as a dollar-per-square-foot of leasable space on an annual basis. Ask the following questions:
- Does the quoted rate include charges for real estate taxes, insurance and Common Area Maintenance (gross rate) or are these items billed separately (net or triple net rate)?
- Are there rent escalations over the term of the lease?
- Is there a percentage rent override clause?
- How are utility payments handled?
- Are there additional charges for signage, trash removal, marketing, etc.?
Length of Term
This is defined as when the lease begins and ends, and needs to be clearly identified in your agreement. Ask the landlord:
- Is there a period of time between the delivery of possession and the actual commencement of rent to allow for preparing the space for business, such as remodeling, setting or installing floor fixtures, inventory, POS systems, and training employees?
- Are there renewal options for extending the lease? Under what conditions? At what rental rates?
- Are there performance or kick-out clauses for under-performing stores? Under what conditions can they be exercised?
This also needs to be spelled out very specifically in your lease agreement. Be sure to address the following:
- In what condition is the space being delivered?
- Does the space need to be remodeled, refreshed, or altered? Who is doing the work? When? At whose expense?
- Will the landlord provide allowances or consider doing a turn-key build out?
- What is included in the landlord's "vanilla box finish"?
Other issues include:
- Signs. What is the landlord's criteria? How many are available? What size? Where? Who pays for them?
- Parking needs to be available and accessible to customers and employees.
- Landlord rules of operation. Are there restrictions or requirements that need to be met?
After basic economic terms are agreed to, a lease draft will be created. The lease is a legally binding agreement that will cover a myriad of issues and "what happens if..." scenarios. This draft should always be reviewed by an attorney prior to signing.
Executing a retail lease can be a "big deal" regardless of your size of operation. It is always wise to seek competent professionals to help protect your long-term interests.