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Top Ten Terms To Negotiate in a Retail Lease

1.  CAM/Operating Expenses – How will they be calculated? How much will they go up each year?

Most, if not all, retail leases will require the tenant to pay its proportionate share of operating expenses as additional rent, in addition to the base rent.  However, what is included in those operating expenses and how they are calculated can be a huge difference in a tenant’s bottom line, which can obviously make a difference in the success or failure of that business.

2. Personal Guaranty –What if things don’t go well? What does this mean for me?

You will most likely be required to personally guaranty the retail lease.  However, there are many ways that experienced commercial lease attorneys can limit this exposure and guaranty.  Knowing how to negotiate a personal guaranty is critical to the future exposure that individuals have when their business enters into a retail lease.

3.  Term – What if things go well? Can I renew?

Setting out the initial rent and renewal rent, as well as the terms and renewal terms, up front in the lease, is important for the future stability of the business.  If the business is successful, the landlord may want to escalate the rent and other terms to capture some of that success. Having the terms for renewal established with the initial lease prevents the landlord from handcuffing the tenant in the future with unreasonable rent.

4.  Assignment – If you sell, will you still be personally liable?

This is one of the few deal breaker issues, in my opinion. You should seek to be released as both the tenant under the lease and all guarantors, from any lease liabilities once the lease is assigned. Imagine selling the business and assigning the lease, but still be liable under the lease as tenant and guarantor if the new tenant/buyer defaults.

5. Use & Exclusivity – Can you do what you want? Can others compete directly?

Is your stated permitted use broad enough to cover all of your intended uses now and in the future? Can the landlord put competing businesses into the shopping center? What are the consequence if the landlord breaches your exclusive use? These are important provisions to protect your interests going forward as a retail tenant.

6. Signage – Will you be able to use the signs you want or that the franchisor requires?

It is important to obtain the landlord’s consent to your signs prior to signing the lease.  What happens if you cannot get governmental approval for the signs? Do you have a right to terminate?

7. Permits – What if you can’t obtain them?

Do you have a right to terminate the lease if you don’t obtain required permits within a reasonable period of time?

8. Default – How much notice of a default and time to cure the default do you have?

Are the default provisions reasonable and do they provide you with sufficient time to cure the default after being provided written notice?

9. Remedies – How harsh are the landlord’s remedies?

Are the remedies that the landlord has reasonable? Can the landlord break into your business and take the assets of the business as payment towards damages the landlord has incurred? In a Pennsylvania lease, can the landlord exercise its rights under the Confession of Judgment clause without your right to defend yourself in court?

10. Landlord Warranties – Will the landlord warrant compliance with the various laws such as Americans with Disability Act and Hazardous Substances laws?

You, as a commercial tenant, have liability if landlord has not warranted them and there is an issue or claim.

The bottom line is that commercial retail leases are very important documents that can impact the success or failure of a business and should be negotiated by experienced commercial retail lease attorneys on your behalf.  Let the attorneys at Lanard and Associates help you with the lease for your business nationwide.

 

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