So far in this series, we’ve covered some of the key considerations involved in how to find a retail store for rent — from conducting your initial web research, to scouting sites in person, to consulting with expert retail brokers on critical factors such as location, traffic, visibility and retail market rents. Now let’s take a look at the final step in the process—the actual retail lease negotiation.
NOTE: This is the third and final part of our series on retail site-selection for independent operators (Part 1 | Part 2).
WHY REPRESENTING YOURSELF IS A MISTAKE IN RETAIL LEASE NEGOTIATION
Entrepreneurs often self-identify as smart, aggressive, and perfectly able to represent their own interests and “close the deal.” And in many other contexts, such as sales and marketing, that’s all totally true. We love and encourage that “type-A” spirit. However, we also have some straightforward advice for retailers: When it comes to finding a retail store for lease, forget about negotiating the deal yourself. As members of your team, the most important piece of advice we can give you is to hire an attorney who specializes in retail lease negotiation.
While we can bring you up to speed on market rents, co-tenancy clauses, and other complexities in the lease, we’re not in the business of giving legal advice; we would never agree to actually negotiate legal agreements between retailers and landlords.
That’s the role of a licensed attorney—and not just anyone with a law degree. Occasionally, we’ll hear of entrepreneurs tapping friends or neighbors to represent them. Maybe that friend or neighbor is a lawyer in residential real estate or some other practice specialty. Simply put, it’s a bad idea. You want your attorney to understand every word of a 60-page retail lease and to have broad experience in negotiating deals with shopping center landlords.
Landlord-friendly provisions in the proposed agreement need to be reasonably fair. You shouldn’t be required, for instance, to notify the landlord a full year before you exercise an option to extend the lease.
When trying to find a retail space for rent, the stakes are high in retail leasing. Many retail leases will contain provisions like a confession of judgment, which essentially allows the landlord to enter a judgment against you that impacts the legal process if they believe you are in default.
A final point on the importance of legal representation: At the time of this writing (October 2020), Covid-19 has spurred a raft of new issues in retail lease negotiation, underscoring the need to come to the table with a knowledgeable attorney.
Many of these issues hinge on your responsibilities if the store ceases operating due to Covid-19 or some other “act of God” (see our Q&A with a top expert on force majeure). Clearly, you want your attorney to win some protections for you in this area. And fortunately, many retail landlords are willing to play ball. It’s a huge development for entrepreneurs who otherwise could have had too many reservations about moving forward with a retail store for lease.
STAY OPTIMISTIC—AND GROUNDED, TOO
Optimism is another quality that we’ve noticed in the high-performing entrepreneurs we work with. You can see it in the passion they show for their retail concept and business model. But franchisees, in particular, need to stay grounded. You can have the best concept in the world, but if that corporate-approved location is sub-optimal, with lackluster deal terms, the store may be unsustainable over the long haul. By finding the right concept, consulting with experts, and relying on your own discernment and hard work, you stand a great chance of finding a highly successful retail store for rent.