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How to Lease Retail Space That Needs Some TLC

5 min read

Take these 8 steps before you sign a lease agreement.

You agonize over business names and logos. You tell every family member and friend, “It’s really happening.”

You’re so close to opening a business! All you have to do is lease retail space.

You find some reasonably priced properties that need some TLC. What should you know before you sign the lease? We’re here to give you answers.

Overview

1. Know What Makes a Lease Price Go Up or Down
2. Find a Good Tenant Broker
3. Get Your Business Credit in Order
4. Negotiate Maintenance and Repair Responsibilities
5. Know What You Can and Can't Do in Your Space
6. Find the Right Lease Term
7. Negotiate Your Rent and Security Deposit
8. Budget for Business Insurance

1. Know What Make a Lease Price Go Up or Down

What could increase the price of a lease?

• Proximity to other shops or customer convenience
• Location, location, and location
  • Compare a space near the center of a retail district to a building on the outskirts of town. You’ll see what we mean.
• Other businesses looking at the same space, which could create a bidding scenario
  

What could decrease the price of a lease?

• Agreeing to a longer lease
• The property being vacant for a while
• The space needing some love (major updates)
• Agreeing to take on remodeling and renovating duties

Are you thinking about tackling those remodeling and renovating duties? It makes sense if you’re willing to put in the work, but there’s a lot more to consider.

2. Find a Good Tenant Broker

Here’s what a tenant broker would help you do:

• Find a commercial space that meets your needs
• Get a better understanding of the real estate market in your area
• Negotiate lease terms

That last point might be the most important. There’s no one-size-fits-all commercial lease agreement, so the negotiation process is very detailed and very customizable.

Plus, there aren’t many consumer laws protecting commercial renters. A tenant broker will help you read and understand the entire lease (yes, you need to do this) so you don’t have regrets later.

3. Get Your Business Credit in Order

Have you established business credit? If you haven’t, you might need a cosigner for the lease agreement.

Fundera developed a helpful guide for establishing business credit, and some of their suggestions include:

• Establishing a business identity
• Receiving a Federal Tax ID number for your business
• Getting a commercial bank account or commercial credit card
• Paying all business bills and loans on time

4. Negotiate Maintenance and Repair Responsibilities

You don’t want your business to close because of an issue that could’ve been addressed during negotiations. Keeping that in mind, know that a landlord is generally responsible for these items:

• Exterior walls
• The roof
• Utilities like water and electricity

Work with your tenant broker to get a ‘health status’ of the property, including a mold assessment. The landlord might ask for a deal where you pay for HVAC maintenance costs but they pay for HVAC replacement costs.

No matter what you negotiate, make sure the landlord’s maintenance and repair responsibilities are clearly defined in the lease agreement. This would include expected response and repair times.

5. Know What You Can and Can’t Do in Your Space

You might be able to pay lower rent by taking on more repair and maintenance tasks. Our advice: don’t bite off more than you can chew!

Really think about this. Do you have the time and skills to handle serious issues with the building’s structure, ventilation systems, or electrical systems?

If you hire contractors to fix issues that could’ve been handled by the landlord, you probably won’t save money in the long run. But if you’re able to make those repairs and tend to your business, then kudos to you!

The landlord will want your responsibilities defined in the lease agreement, so here’s your chance to start thinking about it.

Tenants should take care of the following:

• General cleanliness
• Maintaining equipment used for the business
• Lighting
• Flooring
• Kitchen and bathroom fixtures

6. Find the Right Lease Term

A longer lease term might help you fetch a lower price. You might want to stay in your location for a while if it’s in a thriving or growing retail district.

Then again, a short-term lease gives you the option of finding a new space if your business needs change.

So, what should you do?

Stick with the longer term if your goal is stability. Pick the shorter term if you’re focusing on flexibility. You can always work renewal options into the lease agreement if you want to stay longer.

7. Negotiate Your Rent and Your Security Deposit

Your rent should be negotiable, and it could include:

• Property taxes
• Future rent increases
• Utility bills
• Business insurance costs

The landlord might ask for a higher security deposit if you work in a high-risk industry. Like with everything else, you don’t have to say “yes” to the first figure. Ask for a lower security deposit if you don’t like the one that’s been proposed.

8. Budget for Business Insurance

The landlord will probably ask you to secure commercial general liability insurance during the negotiation process.

General liability insurance covers your business against claims involving bodily injuries to customers, and it’s designed to help with:

• Legal fees
• Medical expenses
• Property damage your company is responsible for
  

Here are other business coverages to consider:

• Professional liability insurance if you give advice to customers
• Commercial auto insurance if you or your employees use vehicles for business purposes
• Equipment breakdown coverage
• Workers Compensation, group life insurance, and other employee benefits
• Data compromise coverage
  
  
  

Do you need a guide to help you explore all your business insurance options? Look no further than Mayfield Insurance!