Finding your dream retail space is like a couple finding their dream home – you look at what feels like a million locations and spend a lot of time walking through each one, asking questions and trying to envision your merchandise displayed along the walls and throughout the floor plan. It takes dedication and can sometimes be a very emotional experience. That’s why finding the right space can have a “clouds parting ways and shining a heavenly light on the location” kind of feeling. But don’t let your emotions rush your decision to lease, you could end up with unfavorable terms that will only create resentment about the space you once loved. We recommend hiring a real estate broker and taking your time with the negotiations, and we’ve compiled a list of the most critical terms to consider.
- Length of the Lease. The majority of commercial leases run for a term of 5 to 20 years with renewal options, but that doesn’t mean that those terms are non-negotiable. If you are hiring a build out or construction crew, like the National Maintenance and Build Out Company (NMBOC), to design and improve the space, you should probably consider a longer lease in order to get a better return on your investment. Conversely, if you have concerns about the location, you should negotiate for a shorter lease. No matter what, though, the renewal terms should be clearly stated and understandable.
- Lease Start Date. You want the beginning date of the lease to reflect your profitable usage of the space. If your retail vision requires major construction, you shouldn’t start paying rent until it is finished. Remember to be realistic with your goals, construction and retail build-outs are known to take longer than you would think and you can’t change the terms once you sign the agreement. To be safe, hire a construction company known for maintaining strict deadlines. At the NMBOC, we have earned our reputation for always coming in on time and within budget – don’t settle for anything less.
- Kickout Clause. This clause is a fail-safe; it will let you out of the lease if your revenues haven’t met stated expectations by a certain time. We highly recommend that you include this clause in your lease.
- Incentives for Tenant Improvements. Occasionally, you can persuade a landlord to offer incentives for tenants interested in making renovations or investing in build outs. Since you will be improving their property, some may help you pay the costs or arrange for a few months of “free” rent.
- Common Area Maintenance (CAM) Fees. These fees are in addition to your rent and cover the shopping center’s landscaping, snowplowing, cleaning and maintenance. While you cannot talk your way out of these fees, you can negotiate a way to keep them manageable. We recommend agreeing to a fixed CAM rate or a capped CAM rate instead of a variable rate. We also recommend that you remove any mention of CAM administrative charges from your lease.
- Radius Clause. This clause was designed to prevent you from opening another business within a certain radius of the store. While you usually can’t eliminate the clause, you can try to limit it to a certain timeframe, say within 5 years.
- Exclusivity Clause. This clause protects you – it prevents your landlord from renting to a competing business within the shopping center. Make sure you include it in your lease.
Once you reach an agreement with your landlord, the negotiated terms will be drafted into a formal lease. That doesn’t mean that you should sign it immediately and celebrate, though. Don’t let all of your hard work get flushed down the drain, hire an experienced real estate attorney to review it first.
Then, when all is said and done and the space of your dreams becomes the space of your reality, call us to help you with any necessary construction and build outs needs. At NMBOC, we’ll bring the rest of your vision to life, guaranteed.