Take a Look at Your Lease

November 12, 2015 by Heart Pine Business Advisors Seller Articles 0 comments

If your business is not location-sensitive, that is, if your business location is immaterial to its success, then the following may not be important. However, lease information is usually helpful no matter what the situation. The business owner whose business is very dependent on its current location should certainly read on.

If your business is location-sensitive, which is almost always true for a restaurant, a retail operation, or, in fact, any business that depends on customers finding you (or coming upon you, as is often the case with a well-located gift shop) – the lease is critical. It may be too late if you already have executed it, but the following might be helpful in your next lease negotiation.

Obviously, a very important factor is the length of the lease, usually the longer the better. If the property ever becomes available – do whatever it takes to purchase it. However, if you are negotiating a lease for a new business, you might want to make sure you can get out of the lease if the business is not successful. A one-year lease with a long option period might be an idea. Keep in mind that you might want to sell the business at some point – see if the landlord will outline his or her requirements for transfer of the lease.

If you’re in a shopping center, insist on being the only tenant that does what your business does. If you have a high-end gift store, a “dollar” type of store might not hurt, but its inclusion as a business neighbor should be your decision. Also, if the center has an anchor store as a draw, what happens if it closes? The same is true if the center starts losing businesses. Your rent should be commensurate with how well the center meets your needs.

What happens if the center is destroyed by fire or some other disaster – who pays, how long will it take to rebuild? – these questions should be dealt with in the lease. In addition to the rent, what else will be added: for example, if there is a percentage clause – is it reasonable? How are the real estate taxes covered? Are there fees for grounds-keeping, parking lot maintenance, etc? How and when does the rent increase? Who is responsible for what in building repair and maintenance?

A key issue for many business owners is determining who holds ultimate responsibility for the rent. Are you required to personally guarantee the terms of the lease? If you have a business that has been around for years, or if you are opening a second or third business, the landlord should accept a corporation as the tenant. However, if the business is new, a landlord will most likely require the personal guarantee of the owner.

The dollar amount of the rent is not necessarily the most important ingredient in a lease. If the business is successful – the longer the lease the better. If it’s a new business, the fledging owner might want an escape clause. And, in any case, the right to sell the business and transfer the business is a necessity.