For business owners, payments on their lease with the shopping center or mall in which their store, restaurant or other enterprise is located are among the highest costs they incur. That’s why strategic negotiation of the lease terms is crucial.
Of course, landlords with space to lease in popular shopping centers have a significant amount of leverage. However, that shouldn’t stop lessees from doing their due diligence to ensure that they are getting the best deal possible. After all, a business owner with good credit and a business that will attract customers to the shopping center is bringing something valuable to the table.
Among the key negotiating points to which you should pay close attention are:
— Fees: The more miscellaneous costs you can avoid paying, the better. It’s common to pay a percentage of the landlord’s utility bills and property taxes in addition to your rent. That’s called a “triple-net” lease. However, be careful about getting stuck with other costs. You can ask to see copies of those bills before you agree to pay them. Find out if you’ll be paying only for the utilities you use or a set portion of the overall utilities
— Competition: There should be a clause that prohibits a landlord from letting a competitor of your business open a location in the shopping center.
— Relocation: Look at under what conditions a landlord can relocate your business to another location in the shopping center and how relocation would impact your rent.
— Term: If you’re a new business still building a clientele, a term of three to five years is best. It will probably take at least a year to build that clientele. If you have an established business, a longer term is usually better.
— Build-out Allowance: Often these are available to lessees during the period when they are readying the space for business. Be sure to ask for one.
— Lease Termination: Find out how long you would need to continue to pay rent if you close or move before your lease is up. Landlords may require lessees to pay rent until the space can be leased to a new business.
Everything is negotiable in a commercial real estate lease. How well you negotiate the terms can have a significant impact on your business expenses for years to come. A California attorney experienced in real estate law can provide valuable advice.
Source: Intuit, “How to Sign a Shopping Center Lease and Not Get Mauled,” Neil Cotiaux, accessed April 15, 2016