If you’re launching a retail business, finding and renting an accessible base to sell to your target demographic is a huge step. Learning the nuts and bolts of leasing commercial property and lease terms, in general, can help you make informed decisions to impact your start-up’s chances of success.
How retail leasing works
When you lease retail space, you’re effectively renting commercial space where your business can welcome customers to market and sell your goods or services.
Lease terms are just as important in commercial property as in residential property. In the residential market, properties with short lease terms or those due to expire but can’t be easily renewed are typically the cheapest and easiest to buy. Anyone selling residential premises in this situation will often struggle to attract the attention of buyers on the open market. That’s why there’s a growing contingent of “sell my house for cash” services online, with the ability to facilitate a quick cash sale without the legal rigmarole of dealing with estate agents and solicitors.
Unlike residential leases, retail agreements tend to be more rigorous, including extended minimum terms. Naturally, this kind of commitment requires careful consideration of where you see your business going, both now and in the medium term.
Getting your head around important retail lease terms
The most important phrase to understand when negotiating rent for a retail space is the lease term. This defines the length of your initial lease. Many commercial landlords prefer to agree on lease terms of five years as a starting point which can be quite risky for new or small firms.
Make sure you know what you’re signing for – request a shorter lease term or potentially a break clause, giving you flexibility should your needs change. A break clause is another key term. It’s a defined point during a lease term where either party can trigger the end of a lease agreement.
Then there’s the small issue of rent – the amount you pay per month to the landlord. This is usually a fixed figure or defined as a percentage of your revenue, also known as percentage rent. Read the small print to make sure you’re aware of any rent escalation clauses too, as some landlords will hike rent every year or after a set timeframe.
If the retail unit exists within a shopping precinct, you may also encounter Common Area Maintenance (CAM) fees. These cover the expense of maintaining communal areas for staff and shoppers. It’s also important to understand what subleasing means. This is a term that allows you to let out the space to a third party if ever your commercial situation changes. If subleasing is permitted it gives you a greater degree of flexibility.
There will also be clauses in a retail contract about the condition of the unit once your lease expires. Some landlords will demand all fixtures, fittings, and aesthetics to be restored to existing condition.
Ultimately, it’s important to go into negotiations over a retail lease with your eyes wide open. Do your homework to gauge a fair rental price for the local market and consider consulting a solicitor with expertise in finalising retail leases. By ring-fencing the time to conduct a thorough review of your retail lease, you’re setting the foundation for a successful and sustainable retail business.
