Tips on getting the best possible retail lease
- Do your homework: Spend serious time and money researching the location for your business. It needs to be near the people who will be your customers, have the necessary level of traffic and not be choc-a-bloc with competitors. “Retailers often want to lease a place because they live round the corner – but just because it’s convenient that doesn’t mean your customers are there,” Spring says.
- Consider strip locations as well as shopping centres: Depending on the location, leasing a shop in a strip mall will often be cheaper than one in a shopping centre. Unfortunately, that also means the quality strip locations are often harder to find.
- Know your leasing market: You need to know what other people in comparable businesses are paying. If you don’t have access to that information, hire someone to negotiate for you who does.
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- Negotiate: It may seem obvious, but Spring says inexperienced tenants will often just accept the first offer put to them by a prospective landlord, especially if they have emotionally committed to a particular site. “You don’t lose anything from haggling – if you are prepared to pay $25,000, first offer them $5000,” Spring says.
- Be prepared to walk away: Whether it’s your initial lease or a renewal, the only power you have in negotiating a lease stems from your preparedness to walk away. Know what you can afford, and if you can’t get it, move on – even if you haven’t fully paid off your fit-out, spending another five years losing money isn’t going to improve the situation.
- Know what to ask for: Rent and term may be the most important parts of a lease, but they are just the beginning. For starters, keep in mind: rent reviews and how they work; who pays for repairs, outgoings, fixtures and fittings; what happens if you can’t pay the rent; exclusivity for your business category; what turnover figures you have to provide and when; and options to renew and when they fall.
- Write everything down, and get lawyers involved before you sign anything: If it matters, write it down, and make sure both sides sign off on it. If it’s not in writing, it doesn’t exist. And once everything is down on paper, get a lawyer to check over your documentation – leases can be as long as 1000 pages, and it can be the two line clause at the bottom of page 762 that makes the difference between business success and failure.
- Don’t get rushed into renewing: Start thinking about what you will accept in renewal negotiations well in advance. “Landlords will often leave things to the last minute and then try and put the pressure on, but it is usually better to go on to a periodic lease than agree to something you can’t afford,” Macaulay says.
- Consider hiring a tenants’ advocate: It depends a bit on the negotiations involved, but you can often hire an experienced retail advocate for around $5000, not a huge amount in the context of a $50,000 a year lease.
- Taking out a lease often means you are buying a job, not an asset: When renewal time comes, expect much of the profitability you have built over the initial term of your lease to be eaten up in rent. A landlord may leave you with enough to pay yourself a decent wage – if you’re lucky – but usually not much more than that.