One of the more challenging aspects of running a retail business is finding the ideal location. One that will maximize your business’s visibility and potential. However, after finding your perfect location, you will then be given a lease agreement, prepared by your landlord, that you must navigate through and negotiate. While your ability to negotiate will be dependent on your specific circumstances and bargaining power, there are certain items that you should keep in mind when negotiating a lease agreement:
1. If you are building out your location, you should seek to extend the rent commencement date. Otherwise, you may be required to begin making monthly rent payments, even though you are not open for business. Generally, a commercial landlord will extend the rent commencement date 60-90 days.
2. The lease agreement should contain an exclusivity clause. For example, if you are opening up a pizza shop in a shopping center, the landlord should not permit any of the other tenants to sell pizza or other similar items that your business offers.
3. The landlord will typically require you to pay a proportionate share of common area charges. Each business’s share of common area charges or “CAM” is usually based on the square footage of the leased premises in relation to the total square footage of the shopping center. The lease should specify how the landlord has calculated your percentage of common area charges and specify what types of items are included in the CAM. Ideally, CAM charges should not include capital improvements made by the landlord to the premises.
4. If you are negotiating for space in a shopping center that has an anchor tenant (such as a supermarket or other large tenant that is drawing traffic into the shopping center), you should seek the option to terminate the lease agreement if the anchor tenant vacates and is not replaced by a similar tenant within a reasonable period of time.
5. Similarly, the lease should contain a dark clause. If more than thirty percent of the square footage of the shopping center is vacant for more than ninety consecutive days, you should have the option to terminate the lease agreement.
6. You should review the lease agreement to determine what repairs and maintenance you are responsible for. Typically, most landlords will agree to repair the roof and any structural damage to the premises. The landlord should provide a one-year warranty on any systems that you are responsible for (e.g., electrical, HVAC, plumbing, etc). If the landlord will not agree to provide any warranties on these items, then you should have them inspected prior to signing the lease. Otherwise, you may find that you are required to make repairs to certain items early on in your lease term.
7. The lease agreement should contain a provision that provides where the landlord’s approval or consent is needed, it will not be unreasonably withheld.
8. You should review the lease to see whether assigning the lease or subletting is permitted. In any case, you should be permitted to assign the lease to another party, subject to the landlord’s consent, which should not be unreasonably withheld.
9. The lease agreement should contain an option term and set forth the rent for such option period.
10. If you are required to provide the landlord with any personal guaranty, ideally, the scope of the guaranty should be limited to one year.
Adam J. Seigelheim is a member of the Franchise Law Group of Stark & Stark, 993 Lenox Drive, Lawrenceville, NJ. 609-896-0960. www.stark-stark.com
