The broker, the landlord and even the franchisor will have an interest in the lease signing that is not always perfectly aligned with the business owner who will be making a long term commitment.
The business owner is most likely personally guaranteeing a large portion of that commitment, for hundreds of thousands of dollars over the course of many years. He or she is truly committed to the success of the location.
Location, location, location is the mantra of success in retail. It is prudent after you finally select a location, negotiate the rent and are ready to sign a lease that you don't let the fine print kill your location down the road. I have worked with hundreds of franchisees and landlords over the years, and I know what to look for,what is critically important and most importantly what many landlords will give up.
As a retail business, your lease is one of your most important assets.
Every situation and location is unique and every business has a different story to tell. Leases can be complex, long and one sided contracts.
My role as your attorney is to explain every clause in the lease in plain language and to come up with a plan to negotiate the most tenant friendly language in the final version as possible.
Here are 10 important clauses to negotiate, after the rent has been decided.
1. CAM (Common Area Maintenance): How will the landlord calculate their cost to maintain the property?
2. Personal Guarantee: What if things go bad?
3. Term: What if things go great?
4. Build Out Period: Never underestimate the time it takes to build a store.
5. Assignment: If you sell, will you still be liable? Can you sell?
6. Use & Exclusivity: Can you do what you want? Can others compete directly?
7. Signage: You don't get what you don't ask for.
8. Permits: How long will you have?
9. Default: How much time do you get to cure?
10. Remedies: How draconian are the landlords's remedies?
Expect the process of negotiating a lease typically to take between 10 and 12 hours of legal work for review, drafting comments and negotiating the final version. The first step is a thorough review of the landlord's lease marking up our requested changes. This first step is critical; it is very difficult to get any further changes not asked for in the first round. After the attorney and the client agree on that first round it is presented to the landlord.
Usually, a conference call is scheduled to come to terms with what is agreeable and to identify all the remaining outstanding
issues.
Finally, the last steps are to negotiate the remaining issues and to work with the landlord's attorney to prepare a signature ready final version. You can expect the process to take 3 to 5 weeks after receipt of the initial lease from the landlord. But the time and money are well worth securing the advantage and protection of your great new location.
I agree with the 10 points Tom lays out, which is why a good real estate attorney is necessary especially when dealing with large plaza/mall landlords.
I have seen one clause in particular, the personal guarantee, come back to haunt a few small business owners whose business did not succeed. The business owner was still on the hook for the remainder of the lease payments even though they were out of business. It was a painful lesson learned. Always understand the consequences of each clause in the lease if things don’t work out. Leases are generally written in favor of the landlords.
Thanks Bob. You are so right about the personal guarantee. In fact, if I had to give up on just about everything and get the client out of the personal guarantee I would take it. Some landlords are agreeable to a burn off of 3 or 4 years and the other option is to push for a limit to the guarantee of say 12 months. No owner should be mistaken, landlords are very aggressive in going after the personal guarantee when a store closes.