Why You Need to Negotiate Carefully Before Assuming a New Retail Lease
If you are always looking for opportunities as an entrepreneur, you may be thinking about opening a new retail establishment in an existing shopping centre facility. Such an opportunity may be potentially lucrative, but you must also realise the volatility of the retail sector these days and be very shrewd about how you approach your project. In particular, you need to negotiate the lease contract carefully and ensure enough room for manoeuvre. What are some of the factors you might need to take into account here?
Negotiating in a Volatile Environment
Landlords are, of course, in the business of trying to get as much rent as possible per square metre. They also want to ensure that their shopping centres are as full as possible when it comes to tenancy so that they can attract more footfall based on general appeal. Yet landlords also understand the volatility of the retail sector and must be flexible in their negotiations. So don't be afraid to push for concessions or alterations to a standard rental contract before you agree to move forward.
Dealing With Fit-out
When you set up a new operation in an empty space, you will need to spend money on the fit-out. This can be quite a sizeable investment in its own right, and you will want to cover your risks accordingly. Some landlords may try to tempt you by offering a "contribution" to your fit-out costs or a rent-free period to give you enough time to set everything up. You need to figure out how much it'll cost to fit everything out and how long it will take.
If you are getting a contribution from the landlord towards your fit-out costs, ensure that you do not face any contractor overruns. If there is potential for delay, make sure that you tie your contractors into a penalty clause and, at the same time, ensure that your "rent-free" fit-out period is sufficiently long.
Do your research to determine the average rental rate per square metre for retail establishments in your area. You can then push the landlord for a sweeter rate or make sure that they adjust the standard conditions to accommodate. Some facilities require an additional rental payment based on turnover, but such a contribution must be subject to negotiation. Make sure you exercise caution and always look at the worst-case scenario when assessing budgets and projections.
Furthermore, it's always a good idea to engage the services of a lawyer who specialises in commercial leases. They may have some additional ideas to help protect you as you negotiate and plan for the future.