Negotiating Leases for Commerical Space
Do you sign a lease or don’t you? Do you renew yours or shut your doors? With so many vacant commerical properties available and more and more business owners suffering from the recession, retailers are struggling with what to do regarding their rental business space.
As small business owners, it is imperative to have a retail space that will allow for customers to get to you easily and ideally allow for walk in traffic, as well. But paying for a premium retail location can be pricey. There are less customers but your rent is still the same. As a result, retailers are wondering – do they sign another contract when their current one expires or move out?
To Renew or Not To Renew – That Is The Question
Landlords get it. They may not like it, but they get. They know that business is tough, consumers are spending less and as a result, small business owners are making less, as well. If you are good tenant with a positive history of paying your rent on time, respecting your space and offer a great store within the space, chances are your landlord would be open to a discussion of renewing your lease on a less expensive scale. If you are comfortable sharing your numbers, let them know what business was and now is so that they can see the difference. Or at least give them percentages to review. Another thought? Consider a month to month contract with the option of three months till you need to be out if they should find a new tenant or you should need to shut your doors. While this scenario may not be ideal, it’s more ideal than an empty store front that has no tenants and no business for your local community. At the very least, have a conversation with your landlord if your lease is about to expire regarding what you can do to stay afloat.
Signing A Lease In A Recession
So you want to start a new business in the mist of struggling businesses everywhere? Good for you! I love that go-get-them attitude! Of course, I am sure you will be pinching pennies where you can, so make sure that getting a great rental space is among those places. Landlords know too well that empty store fronts don’t make money for anyone. A year of nothing in a space is a lot less money than a year of 20% less than what they are asking per month. Consider the location, the local market and your options. Talk with potential landlords about shorter leases (afterall, no one knows what the success will be of their businesses) and cheaper rent. It’s worth the conversation. Make that conversations – talk to a few landlords and consider a few options before closing the deal to ensure you are getting the best available space and rent out there.
Finally – you need to pay your rent, your business expeneses, and hopefully yourself, as well. Don’t let bully landlords get in the way of this. There are smart, willing to work with you landlords out there that “get it” and want to see you succeed. Like it or not, the recession has opened the door for conversations we may not be use to, but unfortunately the recession won’t be over tomorrow so it’s time to start getting use to these new conversations.
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Many retailers reasonably believe that sooner or later, online shopping may provoke the end of traditional
Ted Hurlbut
In this environment, every small retailer needs to be having conversations with their landlords. As Nicole said, landlords understand what’s going on. Whatever you ask for, whether it’s a temporary reduction, or extending on more favorable terms, the important thing is to ask. Anything you can do to drive your expenses down right now takes pressure off of your cash flow.
Emma
As a retailer who’s just signed my first lease to move from online to bricks-and-mortar, I have learned from experience that this is all good advice. There are plenty of good properties out there for lease, and if you keep talking to real estate agents you will eventually find the right lease.
Just be aware that not everything is negotiable at once. A landlord might be prepared to take a shorter lease, or less rent. But unless there is something wrong with the property, they won’t agree to both conditions. Work out what’s most important for your own business longevity, and negotiate for that condition first.
Simone
A short lease is not necessarily a good thing. What you REALLY want on your lease — recession or not — is the RIGHT OF FIRST REFUSAL. That is, the right to be the first “candidate” once your lease expires, rather than having your landlord offer your space to somebody else.
Very few landlords are willing to do this these days, because they do not want to lock in the [weak] terms of a lease under a recession. Thing will be better in a few years (God help us!), so they understandably want to keep their options open.
With the cost not only of the store build-out, but mostly of the customer base that you have built, you don’t want to be moving if you don’t have to!
Jason Lenhoff
Very interesting topic. A few notes of advice, Landlord’s are willing to do short term leases, but are not as flexible on the rent due to the short length of the lease. Simone, a Right of First Refusal only works on a purchase, I am thinking you meant that to have OPTIONS to renew the lease?
Here’s what Landlord’s historically have been looking for when Tenants have come calling for reductions in rent. In 2009, our business was heavy on rent reductions to keep retailers open and operating. All Landlord’s have required that the Tenant’s provide sales and financials of the business in order to “justify” a rent reduction. Better yet, it was more to “satisfy” the request since, keep in mind, that while the Tenants are suffering from this economy, so are the Landlord’s. What is unfortunate about this situation, is that if the Landlord has a mortgage, which most you will find still do, the Bank’s won’t allow them to reduce the monthly mortgage payments. So that money has to come from somewhere. It’s a very sticky situation to be in on both sides since the success depends on each other!!
I do encourage any Tenant that is struggling to talk to their Landlord. Trust me, Landlord’s are very receptive to good standing Tenant’s, you are the reason they own shopping centers.
A few tidbits to know: any reduction the Landlord may give in rent must be made up somewhere, generally at the end of the lease, so be prepared for that. Landlord’s may give free months of rent here and there, but will extend your lease by the amount of month’s free they give. Marketing money could be available to you, but that depends on the size company of the Landlord and if they have the available funds to use towards marketing. That would benefit all in the shopping center.