The three critical “l”s of a retail lease
If your community is like ours, you are seeing some of the long-vacant retail space start to fill up once again. Hopefully it’s one of many signs that business is getting better, customers are returning and storefronts are not going to ever be totally replaced with online shops.
Finding the right retail space is tricky. It’s a lot more complicated than just location, location, location, although that is a major consideration. Leasing may be the best option, particularly if you are just starting out. But leasing brings forward terms like base operating days, subrogation, indemnity, options to extend and escalation clauses. Still with us? The lease you sign can make or break your business. So what are the most important factors to consider in negotiating a lease for your business?
Length. If you have clearly defined your market, have realistic projections, are confident of our product mix and can acquire a location that is near your target audience, a longer term lease might be appropriate. This is where careful planning comes in. Those are a lot of ifs, however, and you need to think carefully about your product mix and operating capabilities. If you are uncertain about any of these factors, you should think carefully before signing a long-term lease.
Leverage. There are three factors that can provide leverage for better lease terms when negotiating with a potential landlord or property manager:
- Unique product or shopping experience. You’ll likely get the most negotiating leverage from a proven, profit-making product mix unlike that of other retailers. If you can make a profit selling what no one else is selling, property managers will want you—meaning leverage to negotiate better terms.
- Market awareness. Not every business can offer a unique or breakthrough product, but almost every one can improve leverage by understanding the local marketplace — local per capita income, unemployment rate, business occupancy rates, average square-footage rates and typical lease terms, for example. The more you understand the business neighborhood in which you plan to locate, the more successful you’ll likely be in negotiating a good lease.
- Legal advice. Ultimately, there’s no substitute for legal counsel. Leases can range from a few, easily digested pages to 100 or more pages. Such a lease is impenetrable to the legally untrained business owner, but not to an attorney specializing in real estate transactions. Having an attorney look over the lease may not lend you an advantage, but it may prevent someone from taking advantage of you.
Location. Location, location, location: It’s a huge consideration in retail as in every other type of real estate. Yes, sheer traffic volume matters to most small businesses, but simply being in a high-traffic area may not be enough. You need to have ready access and good parking nearby. In a mall, look for a location near entrances, escalators and food courts.
For assistance in assessing a prospective location or for research to help you make the best selection, contact your nearest SBTDC; find the one nearest you here: http://www.missouribusiness.net/sbtdc/centers.asp.
Contributed by Neal Fandek, communications specialist