Sum Dum Gai
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Post by Sum Dum Gai on May 1, 2013 15:50:13 GMT -5
Any tips for lease negotiation? I think I settled on the unit I want. It's 2800 sq ft, and the owner is asking 75 cents a sq ft NNN. Monthly, obviously. It's in a centrally located shopping center, but the anchor store has been empty for a couple years. I'd be getting the most visible unit in the center from the intersection. www.agdavi.com/props/401M.pdfThat big end unit that used to be a Century 21 office. Google Clocktower plaza, hollister, ca to see the street view or whatever. I'm putting together an offer now at 60 cents a sq ft, NNN, 7 year length, first two months free to get the store set up. Anything specific you guys would want in terms of exit clauses?
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8 Bit WWBG
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Post by 8 Bit WWBG on May 1, 2013 16:42:33 GMT -5
Do you know what the various expenses are going to be? I had to look up NNN. Once I figured out you didn't mean that Japanese TV station, I saw that you'd be responsible for not only taxes and fees but maintenance. I hope the plaza has recently been re-roofed.
What are standard exit clauses in commercial leases? If you are starting a business, then the lease is with the business, not you, right? So if you go Bk, they cannot come after your personal assets.
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Post by Deleted on May 1, 2013 17:44:40 GMT -5
Are you responsible for a percentage of any common areas as well? Watch out for maintenance costs they can really add up. In a commercial lease I signed I ended up with repair bills for the HVAC-thank goodness I didn't have to replace it! I was also responsible for plumbing repair bills for the plumbing in my space. Property taxes can be high also. Commercial property tax rates are much higher than you house.
Will the LL be paying any build out costs for you or will you be covering that yourself?
Watch out for the unexpected too. My LL added cafe lights to the top of the mall and then billed all of his tenants for the improvement. We also had to pay a percentage of the cost of repaving the lot. I would have an attorney look over the lease with a fine tooth comb!
My lease had to be personally guaranteed so they could come after me and not just the business.
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milee
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Post by milee on May 1, 2013 18:39:25 GMT -5
Pre-approval for all improvements/maintenance over a certain $ amount.
Also, I'd add some language about that empty anchor store. That's a big unknown. If it stays empty and starts to attract vagrants/crime, you could have trouble. Likewise, if the landlord fills the space with a Castle Boutique it might not jive with your store's clientele. You should have exit clauses available for those types of scenarios.
And make sure the attorney you have review this is familiar with commercial leases, so will know the little gotchas and things particular to that area. They may also have some scoop on this landlord, upcoming changes and other things that will help your negotiation.
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Lizard Queen
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Post by Lizard Queen on May 1, 2013 20:55:45 GMT -5
You can ask for caps on any of the expenses, but especially CAM. You can have certain things excluded from your CAM share. You can ask for an option to terminate the lease if your sales don't go over a certain threshold, in, say, your 3rd lease year. You can ask to pay just gross rent, instead of triple net, plus a % of sales over a certain breakpoint. You can ask for lease language that limits how much you have to pay for HVAC maintenance/repair. With triple net leases, you would usually get a tenant improvement allowance to pay for your fixturing. You can ask for a co-tenancy clause or an exclusive for book/toy store....there's all kinds of things you can ask for, especially with vacancies in the center.
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alabamagal
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Post by alabamagal on May 2, 2013 8:10:20 GMT -5
We have leased building in shopping centers for the last 20 years. You can ask for a lot of the things mentioned, but I doubt you will get much of a deal on the rent. You are asking for 20% less than asking price, that seems a bit much. Commercial real estate companies are generally pretty tuned into market rates and you rarely can get them to come down.
Also, most leases have an escalation in rent over the time period. Our last lease was 5 years with pretty big escalation, but we got them to come down quite a bit, very little increases over the lease period.
Definitely ask for exclusivity clause. This is pretty standard. Also pay attention to parking situations and what kind of businesses are next to you, even though you don't have a lot of control over that. This is mainly for parking and clientele concerns. Some of the bad businesses to be next to can be food places who have a big lunch crowd which takes up all your parking. My DH now has a store 2 doors down that is a rental car company (big one starts with an e) and it has caused havoc with the parking lot, and he is always complaining to landlord. At a previous location he was not happy when a title loan place moved in - always had people leaving beer bottles in the parking lot and people looking for restrooms.
Good luck
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Lizard Queen
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Post by Lizard Queen on May 2, 2013 19:43:01 GMT -5
The occupancy % seems pretty low, with the anchor gone. That is your leverage. It's all about supply and demand. I've worked in the billing end of this business for over a decade, so I've seen a lot of different deals over the years and throughout the country. However, most of the centers I've worked with were/are not this small. Some general advice--Being a small mom and pop just starting out puts you at a disadvantage. (You have no name recognition yet, for one.) A landlord will try to get as much as they possibly can out of you, within reason, of course. The little guys seem to get the worst deals, until they've been there a while and start to ask for concessions. Then, it depends on the occupancy and how your store fits into the tenant mix they're looking for. The big national retailers know what to ask for and demand as much as they can from the landlord. Again, supply and demand...
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bean29
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Post by bean29 on May 7, 2013 0:11:30 GMT -5
Dark the 7 year lease would scare the bejezus out of me. Are you signing a personal guarantee? With the low occupancy rate noted I would think they would accept a shorter term lease possibly even 1-2 years. I am more familiar with industrial leases but ours are commonly 1-2 years and sometimes 3 years. We generally have longer terms with leases that have more tenant build out. Often we have terminology that allows an exit by paying a "lease buy out" fee. I agree you should find an attorney familiar with retail/commercial leasing to represent you.
Good Luck.
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Regis
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Post by Regis on May 7, 2013 7:22:10 GMT -5
I would also try to negotiate a shorter lease.
Just curious - which of the other stores in this strip center do you believe will help drive foot traffic to your store? The 99 cent store may help but many of the others seem to be service providers (dentist, insurance, etc.) and are considered single source destinations.
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reader79
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Post by reader79 on May 7, 2013 12:00:48 GMT -5
We had a second store a few years ago in a little strip mall. The lease included all sorts of language about what kind of activities/services we couldn't do/sell in the space, due to the other tenants. For instance, there was a early child development center that had classes, so we weren't allowed to offer classes for babies, etc. There was a test prep place, so we couldn't sell advanced test prep books that wuold compete with their offerings.
Your vision of the business may change based on the clientele and you want to leave yourself open to adapt. It also had a bunch of 'service' businesses, which led to people using our store as almost a waiting room, and making only very small purchases to keep their children from whining. They also overused our bathroom, and some days the little Flavia coffee machine brought in the most money. They weren't in the mindset to 'shop' when they came to the center, and that hurt us. I think it was open about three years before we closed it.
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Sum Dum Gai
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Post by Sum Dum Gai on May 7, 2013 13:40:41 GMT -5
In the center I'll be in there will be a pet store a few doors down from me. They're the only low cost pet vaccination place in town, so on the weekends they do that the line is huge. Pet families and people with children from birth to age 12 (my customer demographic) overlap quite a bit. That's about the only other establishment in there that really does much for me. However, next door to the shopping center is the only movie theater in town, and on the same side of the street but across the intersection is the busiest grocery store here. I like the location for the amount of traffic at the intersection and the visibility. I have to run it like a destination store though, not relying on foot traffic from the neighbors. It'll change our advertising a bit.
I believe a toy store can work as a destination though. The vast majority of the time parents are going to a toy store for a reason. An upcoming birthday party, either their own kids or a friends, or a holiday. They'll make a short trip specifically to go to the toy store. During the Christmas season I'll be driving traffic to the other stores, not the other way around.
The vacancy rate in the center is part of the reason I like it. It gives me a stronger bargaining position on the lease. Everywhere else in town wants $1 - 1.25 per sq ft per month. I think I can get this guy down a bit from 75 cents, or get other concessions on build out, signage, or a couple months free to set the store up. The location, nearby traffic, and visibility are solid.
Depends entirely on the exit clause.
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reader79
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Post by reader79 on May 7, 2013 14:48:53 GMT -5
Dark, you should think about setting up a party room and hosting parties in your store. We charge $499 and have six here most weekends. The parents also usually buy goody bags for the guests, and we can setup a registry for the birthday child if they want. We had a partition built with double glass doors in the strip mall store, didn't cost much if I recall correctly.
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Post by Deleted on May 11, 2013 17:26:02 GMT -5
Will the lessor require you bond the lease since it is a new business and 7 year agreement? How much will that cost?
Business Attorney for the rest!!! - Lease Early Exit clause. By what agreements? If there are any 'fault' conditions for exit, they must be crystal clear and easily quantified so that you are not ending up in court while attempting to exit a disadvantageous situation. My direction would be to create a "no fault" exit agreement right up front so that it does not matter why you want out (or why they want you out) that is palatable regardless of the situation. Just keep in mind that when you do this the landlord can oust you too. If your rental rate is lower than market in a couple years they might want to boost you out.
-Improvements. Usually you negotiate for the landlord to cover a portion or all of the improvements required to support your business. But if you exit before the end of the lease term you have to reimburse a % (changes each year)
-Maintenance. You want to be responsible for NONE of that whatsoever! Only maintenance of your improvements and their code compliance etc. Plus normal wear/tear items on the interior of your space.
- Maximum annual & life of lease rate increases specified in the contract.
For your type of endeavor - Neighboring businesses need to stay in the arena of 'family friendly businesses' You do not want an adult shop or a raucous bar opening next door or your clientele is gone.
That's all I have got. I have not done leases for small shopping district spaces, so I'm sure there are other implications for small business space that I don't know about.
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Sum Dum Gai
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Post by Sum Dum Gai on May 15, 2013 4:47:02 GMT -5
Sorry guys, I've been busy and not updating you guys much.
I think I changed my mind on the location. The place in the op was willing to go down to 65 cents a sq ft, however they wouldn't budge on the net charges which were 40 cents a sq ft. Per month. Oh, and no credit towards build out, signage, or anything else really. It was going to be $2,940 a month for 2800 sq ft, and the net charges may or may not have actually covered everything. Oh, with rental escalation of the San Jose metro area CPI, with a 3% minimum annually.
The new place is way too big, but the price is right. $2,500 a month gross lease, they're willing to do month to month, for 4,800 sq ft of space. It's on a busier street, but has less parking. I have the option of subleasing the back section which has a commercial kitchen hood and a huge walk in cooler. It used to be a butcher shop. The broker already has somebody that wants to sublease the back, but I have a friend of a friend that does cakes. She currently works out of her house, but she's talked about expanding. I'm thinking about using some of the space in the back for a party room, which would be perfect if I can get the cake lady in there to do custom birthday cakes. If I can get her to make cupcakes, cake pops, or something else like that that I could sell out front that would be good too.
At basically 50 cents a sq ft I'd be happy using the front for my toy store, and leaving the back empty, so any extra business I could pull in is gravy.
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bean29
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Post by bean29 on May 15, 2013 5:18:21 GMT -5
Dark have your potential sub lease talk to the city to find out if they need any major improvements for an occupancy permit.
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Sum Dum Gai
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Post by Sum Dum Gai on May 15, 2013 12:46:04 GMT -5
The improvements won't be an issue, those permits are usually issued within a day or two. The wait will be with county health. Anything food related has to go through that office and they aren't exactly fast. They'll need a health permit which they can't even apply for until after an inspection of the kitchen after improvements and they'll need food handlers cards.
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Sum Dum Gai
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Post by Sum Dum Gai on May 15, 2013 15:09:37 GMT -5
I'm not going to, sounds sticky.
Downtown boutiques. Photography studio, clothes, dance studio, and coffee shop/bagel place on my block and side of the street. I'd be the corner unit, the coffee shop/bagel place is the other corner, the other shops are in between us. Across main street from me is an auto shop, sushi place, clothing boutique, day spa, and some professional services, insurance and stuff. Across the side street is a restaurant, best burgers ever. Kitty corner across the intersection is a liquor store which is unfortunate, but there's nowhere downtown that you aren't within a block of a bar, tattoo shop, or both.
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swamp
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Post by swamp on May 15, 2013 15:20:38 GMT -5
sounds like you might draw some parents in while they wait for their kids at dance lessons. Maybe offer them 10% off for members of "Sue's Dance Studio"?
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