For a retailer, a commercial storefront lease is typically one of the first physical commitments made to a new business. It’s also one of the most lasting. Retail space is expensive, and most landlords are looking for tenants willing to lock into a multi-year lease.
If you’ve been in business for a few years, chances are that you did your homework and ensured that the place you chose was in your target market. You’ve probably also grown to love the area, as well as the clientele that comes with it. But when the lease is up, what happens next? Most small business owners will try to stay put, but may have to make serious concessions to their landlord.
When negotiating a renewal on your space, keep the following points in mind.
You should always look at other properties
Back when you first signed your lease, you probably shopped around and looked at a few other properties to get a feel for the market. Do that again before you approach negotiations. Even if it feels like the market hasn’t changed, you still need to know what base rents are being offered, and what other landlords are expecting from their tenants. Landlords working in the same market tend to offer the same types of incentives to potential tenants.
By shopping around and finding out what those incentives are, you’ll be better prepared to distinguish between an offer that’s actually good, and a run-of-the-mill pot sweetener.
Don’t make the first offer
Hopefully your lease has a renewal clause – most leases do, unless it was previously made clear that the lease was going to be short-term. If your lease has a renewal clause, you need to keep yourself from jumping the gun. The minute you make an offer is the minute you tip of your landlord that you want to stay, which gives them the upper hand in negotiations. Instead, write a letter to your landlord and ask for a written renewal proposal. This forces them to act first, and gives you a good idea as to what they are going to try and offer you.
You don’t have to sign on for a five-year stint
The rule of thumb for the standard length of a retail lease is usually around five years. However, new businesses are normally offered a two or three-year option when they first start out since no one knows how successful the business will be in the long run. Your landlord is probably going to try and lock you into a longer lease and, though the economy is recovering, now is still not the best time to commit to a location for more than a few years. Landlords will typically prefer a short-term lessee to no lessee, so they should negotiate on this point.
Get EVERYTHING in writing
After a couple of years, you probably have a good idea as to the type of person your landlord is. If they’ve tried to cheat you out of money at every turn, then naturally you would make sure your leasing agreement was iron clad. But if they’ve been a great, dependable person, you may feel like you can trust them completely.
As cynical as this may sound, never trust their word alone. Written agreements protect both you and your landlord, and there is no reason not to put everything in writing. Repair policies, renewal clauses, and exclusivity agreements – anything related to your lease needs to be written down and put into your official leasing agreement.
Remember, you can walk away
Always remember that you can walk away from your current space if you need to. Don’t sign anything if it means having to deal with a crummy landlord or a ridiculously high rent. You should have a pretty good idea about market conditions if you properly prepared for negotiations, so you’ll know what else is out there.
Put in a few proposals; and see what comes out of them. You never know – your current landlord may feel some pressure from the competition and offer you a better deal!