How to Lease Retail Space

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If you're selling a product, you may need a space from which to hawk your wares. Don't sign a lease on the first bargain you see--find a location that's accessible to your customers and suited to the needs of your business.

Make sure that any space you're considering is big enough for both your current needs and your foreseeable growth. Be realistic and don't overcommit.

Do your homework beforehand. Investigate traffic patterns; tour the building. Find out who the previous tenant was, and why the business left. Learn what kinds of marketing the location does in support of its tenants (if any) and whether co-operative marketing funds are available to you.

Weigh the benefits of guaranteed foot traffic at a mall location against premium rent. Some malls require that all tenants stay open during mall hours, and pay for common area usage as well as the store's own space and upkeep. Stores may also be asked to pay a percentage of sales to the mall.

Identify your closest competitors. Also check out neighboring businesses with an eye for complementary products or services. Is there an established cluster economy? If you are locating in a mall, check the lease agreement for any guaranteed protection against competition (malls may rent only to a set number of similar stores at any given time).

Evaluate whether the physical location and space is a good fit with your product line. Do you need a large, bright space or a charming, cozy nook?

Investigate any restrictions on signage. Signs are vitally important to retail businesses, yet many landlords decide on what a store can and cannot do. The rules may be even stricter in a mall, which closely monitors its physical appearance.

Negotiate the terms of your lease aggressively. Never accept wording that's confusing or that leaves you wondering who is liable for what. Ask for the right of first refusal on adjacent space in case you need to expand. Negotiate for free improvements and other incentives before signing your lease.

Hire a real estate attorney who not only specializes in lease negotiations, but knows your area and, preferably, has dealt with your kind of business before. A lease negotiation can cover tens, if not hundreds, of terms, and you want someone in your corner who's seen it all before.

Know who's responsible for maintaining the heating, air-conditioning and other systems, as well as keeping up the parking lot and building exterior. This can be critical in older buildings.

Tips & Warnings

  • If negotiation isn't in your blood, have an attorney handle the transaction.
  • If you're unsure of whether your business can make it in a particular mall, one option is to lease a cart or kiosk for a month or two. Although you won't be able to stock much merchandise, you can get a firsthand feel for the amount of traffic, interest in your inventory, and demographics of the shoppers there.
  • Investigate liability insurance carefully. Since the general public will be walking through your store, be sure that you have adequate coverage in case an accident happens in your store.
  • Some landlords require a percentage of sales in addition to the monthly lease payment. For such an arrangement to be worth it, get guarantees on foot traffic and low penalties for leaving your lease early.
  • Think twice about renting space just because it's cheap. You may find out later just why it's inexpensive-- perhaps that location has a track record for failed businesses, or the layout discourages foot traffic.

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