Money-Saving Tips for Leasing Retail Space
Go for free rent
A typical commercial lease rate is based on a cost per square foot. But in a “buyers market” for retail space — when there are a lot of openings available — landlords commonly will offer free rent for a certain number of months as an enticement. They’d much rather do this than lower the cost per square foot because it allows them to show the higher lease rate on their books, and lock in that all-important rate for the future. It also allows them to tell other prospective tenants that space has been rented at a higher cost per square foot, even if the “effective” rate is lower due to the free rent.
Bargain for buildouts
Buildouts, or leasehold improvements, include a wide range of changes, improvements or installed fixtures that are made to the space to accommodate the exact layout your business needs. Don’t lease a bare-bones space. Ask the landlord to reconfigure the space to best meet your needs and the needs of your customers.
Dicker over deposits
The landlord will undoubtedly ask for a deposit — probably a big one. If yours is an established business with a proven cash flow, you can probably negotiate a smaller deposit. If you’re new, you might have to live with something larger. But in any case, you can save money by building in a provision for at least partial return of your deposit after a specified period of time, or after your business reaches a target level of sales, and contingent on a solid record of paying your rent on time.
Insist on a non-compete clause
Depending on the type of retail business you have, you may want to make sure your lease prohibits the landlord from leasing space in the same or any nearby retail center to a direct competitor.
Beware of all those other fees
Basic rent isn’t likely to be your only cost. Make sure you are clear on who pays utilities. If you pay, ask for proof of expected costs in the form of prior utility bills. Common area maintenance fees can also be a killer, so watch out. Ask for estimates of all current fees in writing, along with a history of prior increases. Ask for a cap on common area charges so you know the maximum you’re liable for.
Seek a sublease provision
If your business blossoms and you need to move to bigger digs, or it hits some bumps and you need to pull out of your lease early, you’ll want the ability to sublease the space.
Cap your annual increases
Most leases build in an annual rate of increase. As with most other provisions, annual rent hikes are negotiable. When commercial real estate conditions are poor, you should be able to negotiate a smaller annual increase, or maybe even no increase at all over a shorter-term lease.
