Finding Your Store Site
and
Negotiating Your Lease
Finding a good site requires careful
due diligence. You should create a
file that shows the prospective site on a city map; the site plan; the building
floor plan; photographs from all sides of the site, at the site and away from
the site; zoning ordinances; sign ordinances; customer demographics and a strip
map showing business and competition in each direction from the store for
one-half to one mile.
After
narrowing the selection to a few very good sites, use a letter-of-intent to
obtain a landlord’s commitment to lease a property to you. The landlord is in the best position to know what basic lease
terms are necessary to insure a well-managed real estate development.
However seek certain fundamental lease terms that favor you. Define the
landlord’s required work to prepare the site for your use in an exhibit.
Upon
execution of the letter-of-intent by both parties, employ a real estate attorney
to assure that the lease documents reflect the agreements reached.
The information that follows applies to leases for in-line stores or
kiosks. This checklist covers key
points you should attempt to cover in leasing a store or kiosk.
You will not get all of these points in a lease.
Something on the order of fifty percent is acceptable.
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Use
of Premises
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This defines how you will
use the premises for your business.
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Lease
Term
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This establishes the
initial lease term, usually ten years.
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Options
to Extend
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This creates an extension
option. This is usually one
or two five-year terms.
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Basic
Rent
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This establishes the
initial rent. It may be a
flat rate, or stepped over the term of the lease.
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Percentage
Rent
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In addition to basic rent,
there may be a provision for percentage rent, based upon gross revenue.
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It is important to specify
the percentage rent occurs after the “natural break point” so you only
pay on an average of a full year.
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Free
Rent
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Free rent is one of the
methods to obtain an allowance towards your tenant improvements or
fixturing costs.
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Lease
Commencement:
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In the case of new
construction, the lease should commence upon opening the development to
the public.
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You should get ninety days
for tenant build out after lease execution.
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As
Built Drawings:
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Require “as built
drawings’ or reimbursement for the
cost to prepare plans for the space.
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Landlord
Delays Opening:
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Obtain a lease extension.
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Obtain reimbursement for
out-of-pocket costs.
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Or, terminate the lease.
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Obtain
Permits:
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Condition opening upon
obtaining required permits.
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Condition
of Premises:
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This clause defines the
condition of the premises. It
also is used to obtain a fixturing allowance to offset items that
landlord’s normally provide.
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Minor
Changes:
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Provides for minor
non-structural changes without the landlord’s permission.
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Hazardous
Materials:
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Site free of hazardous
materials or landlord removes at its cost.
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Landlord’s
Improvements (New Construction):
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Landlord’s commitment to
store location, project, common areas and parking.
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Reserve right of approval
for any changes that can affect the economics of your location.
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Seasonal
Openings
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Avoid opening during
January through April, or minimize rent during this period.
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Exclusive
Use:
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Limit competing retailers
to insure your income.
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Outside
Seating:
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Ask for outside seating, as
appropriate.
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Store
Hours:
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You may be open more hours
than other retailers at your location.
The lease should provide that you are open no longer than the
majority of the retailers, or specific retailers at the site.
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Early
Termination:
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Reserve the right to early
termination if sales do not reach expectations. Expect to pay a penalty of approximately six months’
rent.
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Seasonal
Holdover:
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For lease termination that
occurs at the end of a calendar year, add a holdover clause to permit
occupancy until the last day of February.
This gives you holiday sales.
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Tenant
Changes:
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Provide for rent reduction
or lease termination in the case of substantial tenant turnover and an
adverse change is types of tenants.
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Sales
Reporting:
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If required, set the report
date to be the fifteenth of the following month.
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Charges:
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Limit charges for
insurance, taxes and common area maintenance charges to those charges that
relate to the actual operation of the project.
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Limit annual increases to a
reasonable percentage of previous years’ amounts.
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Obtain an accounting of the
previous two years’ actual charges.
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Insurance:
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Set reasonable limits,
currently $2,000,000 per occurrence and in the aggregate.
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Obtain mutual waivers of
subrogation and indemnification.
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Landlord’s
Consent:
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Set the standard as
“landlord’s consent not to be unreasonably withheld.”
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Arbitration:
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Resolve conflicts by
arbitration.
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Non-Disturbance
Agreement:
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This provision gives you
quiet possession of the premises, regardless of the fortunes of the
landlord.
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Right
to Relocate:
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If the landlord remodels,
you want the right to relocate to superior premises or gain economic
relief.
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Merchants’
Association:
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If there is one, set
reasonable limits for the first year.
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Ask to have your store
marketing expenditures included as part of your contribution.
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Hold
Harmless Agreement:
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Condition your requirement
to hold the landlord harmless against intentional reckless or negligent
conduct by the landlord.
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Right
to Conduct Business:
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Your lease should provide a
conditional abatement of rent if forces beyond your control prevent you
from doing business.
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Eminent
Domain:
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Governmental exercise of
its right of eminent domain requires a lease provision to mitigate or
terminate your lease.
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