Effectus
Effective | Flexible | Results

News

Articles and Announcements

5 Myths About Retail Leases

Don't fall for these myth's about retail Leases!

Opinions about retail leases are much like opinions about where to invest, everyone has one and most of them are wrong. Don't get fooled by these 5 common myths I see proliferating about retail leases.

1. Get as short a term as possible, this limits your risk. WRONG! This prevents you from capturing one of the primary values of a lease, protection from oscillations in the rental market. Get as long a term as possible with fixed rent escalations:  this will create an asset that you may be able to sell later.

2. Most of the Lease is Boilerplate, so it's non-negotiable. "Boilerplate" is a term used to describe standard language in contracts that is "standard," "cursory" or not normally negotiated between the parties. Rest assured that in retail leases very little of the lease document is "standard," "cursory" or not normally negotiated. You do yourself a huge disservice if you do not negotiate the language of your business' lease. Failure to negotiate your lease could cost your business hundreds of thousands of dollars!

3. It's always cheaper to take over an existing lease. Buying an existing business and assigning (aka transferring) the existing lease to your new business may seem like a great way to save some money (and it sometimes is), but be careful! When you take over someone else's lease you are taking the bad with the good. Maybe the reason that the current owner wants to sell you their lease is that it's a horrible location, the landlord is a slumlord who sucks out every penny he can from his tenants and is a nightmare to rent from. You need to thoroughly investigate the actual terms of the lease before taking over any lease. It could be a like buying an shiny apple with a rotten core.

4. I have an option to extend the term of my lease another 5 years, so there's nothing to worry about. Depending on the language of your right to renew the term of your lease, you may or may not have the right to extend the term of your lease at a reasonable rental rate. It depends how well you negotiated your lease at the beginning. In fact, many renewal options I see in leases are what I call "imaginary renewals:"  renewals which omit certain terms which prohibit the landlord from imposing an arbitrary rental increase when the tenant exercises the renewal right.

5. I didn't use an attorney to negotiate my last lease and nothing bad happened, so it's a waste of money to hire an attorney in the future too. The danger to all successful entrepreneurs is to confuse good luck with smart planning. Few clients walk into my office with problems with their lease when the lease was negotiated by an attorney; most clients who have serious problems with their landlord never used an attorney to negotiate their lease (and consequently their problems went from "difficult" to "near impossible." Your lease is the single most important asset your business will own; it's worth investing the money in attorney's fees to make sure that you make a sound, prudent investment. I'm pretty sure you can buy a "DIY heart surgery kit" on Amazon, but I'm not sure that you should. Likewise, don't perform open-heart surgery on your business on your kitchen table! Get some expert advice.