How to Negotiate Retail Lease: Tips for Success
If you’re looking to lease a retail space, be sure to follow these six tips on how to negotiate retail leases for success. From haggling over the fixturization period to negotiating for all available perks, you’ll be able to get the best possible deal on your new retail lease.
I remember when I was first looking for a retail space for my business. I had no idea how to negotiate retail lease and ended up paying way more than I should have. If only I had known then what I know now! Here are tips that will help you successfully negotiate a retail lease:
What are the types of commercial retail leases?
Depending on the terms of your rental agreement, your monthly rent could be anywhere from $500 to $2,000. However, this price can fluctuate based on whether you’re responsible for paying for things like electricity, water, and property taxes.
As a brand new retailer, you may find it more efficient to budget by paying a premium. This is because it allows the landlord to take on most, if not all, of the financial responsibilities. Clint Gharib, in Forbes, offers clarity on the four main ways that commercial leases are structured:
“Single Net Lease: tenant only pays utilities and property tax; landlord pays maintenance costs, repairs and property insurance.
Net-Net, or Double Net Leases: tenant is responsible for only utilities, property insurance premiums, and taxes for the building; the landlord pays maintenance & repairs.
Triple Net Leases: tenant is responsible for all costs of the building, except the landlord is generally responsible for structural repairs.
Full Service Gross, or Modified Gross Lease (also called modified net lease): split structural repairs and operating expenses (property taxes, property insurance, common area maintenance (CAM), and utilities) between the tenant and landlord called ‘base rent.'”
As a general rule, you will have more negotiating power with an independent landlord than a corporate one. This is due to the fact that independent landlords are not bound by the same rules and regulations as corporate landlords. As such, they are often more willing to negotiate on things like lease structure and base rent.
How to Negotiate a Sublease
First, you need to decide what your budget is. You also need to decide what is a must have and what would be a nice to have. After that, you can start looking at locations.
If you’re just starting out, the ability to sublease in case things don’t work out is probably more important than free parking. However, if you have your own transportation or are willing to use public transportation, free parking may not be as big of a deal.
Those extra perks are your bargaining chip.
How to Negotiate a Lease
If you’re looking to rent a commercial property, it can be helpful to hire a broker. Brokers are experts when it comes to negotiating leases and can help you secure the best deal.
They’ll be able to catch any deals or clauses that are in your contract that you might have missed.
How to Negotiate Retail Lease From a Place of Strength
To negotiate, you should work on multiple angles. This will make you a stronger negotiator, allowing you to walk away from one deal.
Ways to Save on Commercial Rent
Due to the continuous change of tenants, the amount of usable space in a building can often be misrepresented. Commercial renters will often take up less space than they are paying for in order to save on rent, resulting in an inaccurate depiction of how much space is actually available.
It’s not uncommon that a landlord will list the rental price per square foot. However, this may not be an accurate representation of the amount of space you’re actually getting. Be sure to carefully check the measurements and size of the apartment before agreeing to rent it.
The square footage is an important factor to consider when renting a commercial space. You want to make sure you are only paying for the space that you will be using.
If the space seems smaller than what your landlord is telling you, you can negotiate with them to lower the monthly rent.
Ways to Improve Your Base Rent Negotiations
A method that may help here is to renegotiate your lease terms, and try to get the longest possible term with the least benefits. A landlord may be willing to offer a longer commitment if you commit to staying longer.
One approach you can take is to try and negotiate for renewals when you renew your current agreement.
If you’re not able to agree on a 3-year lease terms, you may be able to come to an agreement on a 2-year lease with an option for renewal and a very small rent increase.
As a note, you should always negotiate the renewal options to get future rent increases capped. This is a good idea because it protects your business from large, unexpected price hikes that could force you to close up shop.
If you’re starting a retail shop, you may want to sign a short term lease. This will allow you to price your products higher, as well as secure more favorable terms for terminating the lease and for subletting the space. This will provide you with some security, just in case your business doesn’t pan out.
Tips for Negotiating Free Rent Periods
Offering free or discounted rents can be a great way to attract tenants.
A tenant may want a lower base rental rate, but a landlord may not agree. Instead, they may agree to a discounted monthly price in exchange for longer lease lengths. This can be a great solution for both the landlord and the tenant.
If you sign a three-year lease, you can get one free month of rent each year, which will lower your total rent payments by 8.3%.
When negotiating free rent periods, be sure to also waive other expenses such as maintenance and utilities for that month. This will ensure you get the most out of your discount.
Ways to Make Sure You Have a Cure Period
If you are late on rent payments, you will usually be given a “cure” period in which to rectify the breach.
If you don’t have a grace period written in your lease agreement, you could end up having to pay a fine or legal fee if you forget to pay for something small like a day’s missed rent.
Be sure to negotiate a grace period into your lease before you move in. A grace period is an important aspect of all lease agreements, and most property owners will be willing to include it.
Negotiate lower early termination penalty fees.
Negotiating with carriers for lower cancellation fees is always worthwhile, even if you’re only canceling your service after a few months.
Add a sublease clause.
Adding in a sub-let provision to your lease contract is a good idea in case you need to move out before your term is up. This lets you find a new renter to take over the space, and helps you recover any lost revenue.
Have a co-tenancy clause written in.
If a tenant that is a major driver of traffic to your business in the same mall or shopping center decides to move, you can terminate your lease agreement with a co tenancy agreement. This is especially crucial for small stores that operate in a strip center with a big name retailer such as Wal-Mart or Target.
Small retail businesses that operate in a strip mall and have a popular retail behemoth like Target or Walmart nearby often have to compete with the behemoth for customers.
Include a clause preventing your landlord from renting out space in your building to a competitor.
If you are worried about your competition moving in next door, you can request that your landlord include a clause in your lease agreement preventing them from renting space to anyone in your same line of business. This is a smart idea, and while it may not be a make-or-break issue, it is certainly something worth negotiating for.
Negotiate for all available perks.
While negotiating with corporate landlords can be difficult, they can provide benefits such as free parking or free Wi-Fi.
Don’t be afraid to negotiate your lease with your landlord. Doing so could save you money in the long-run. Just remember, their initial proposal is just their opening gambit.
With these tips, am sure you now know how to negotiate retail leases successfully. Remember to negotiate for all available perks – this will help you get the best possible deal on your new retail space.