Tips for negotiating a retail lease

On Behalf of | Jul 24, 2023 | Real Estate

For aspiring Pennsylvania retail entrepreneurs, securing the right location is crucial to their business’s success. However, navigating the process of negotiating a retail lease can be both exciting and daunting. A retail lease is a legally binding agreement between a retailer and a landlord, outlining the terms and conditions for renting the commercial space.

Understand your needs

Before entering negotiations, have a clear understanding of your business’s requirements. Assess the square footage, location, foot traffic and amenities needed to run your retail venture effectively. Knowing your needs will help you identify potential properties that align with your vision.

Research the market

Thoroughly research the local retail market to determine the average rental rates and lease terms in the area. Understanding the market dynamics will give you a competitive edge during negotiations and enable you to negotiate a fair price.

Negotiate lease term and renewal options

Negotiate a lease term that allows your business ample time to establish itself and grow. Avoid long-term leases initially as they can lock you into potentially unfavorable terms. Instead, aim for shorter terms with renewal options, providing flexibility and room for renegotiation.

Be mindful of additional costs

Retail leases often include additional costs, such as maintenance fees, property taxes and common area charges. Clarify how these costs will be divided between the landlord and tenant and negotiate to cap or limit increases in these expenses.

Request tenant improvements

If the commercial space requires renovations to suit your retail real estate needs, negotiate a tenant improvement allowance with the landlord. This agreement will specify the amount the landlord will contribute towards the modifications, making the space conducive to your business operations.

Consider exclusivity and co-tenancy clauses

Depending on your retail niche, seek exclusivity clauses in the lease to prevent the landlord from leasing nearby spaces to competitors. Furthermore, include co-tenancy clauses that allow you to break the lease or renegotiate if key tenants in a commercial center, known as anchor tenants, close their businesses.

Carefully review lease termination and assignment provisions

Entrepreneurship can be unpredictable, and circumstances may change, requiring you to exit the lease early or transfer it to someone else. Understand the lease termination and assignment provisions, and negotiate terms that provide you with reasonable options if unforeseen events occur.