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Consider these points when you negotiate a retail lease

On Behalf of | Jul 18, 2023 | Real Estate

In Illinois, a commercial retail lease is a contract negotiated between a tenant and a landlord to rent a retail space. Understanding the lease structure and terms is crucial in securing a favorable deal and knowing which parts of the lease you can negotiate and how empowers you as a tenant. The following provides points to consider while you negotiate a retail lease so that it suits your needs and protects your interests.

Lease structure and terms

In commercial real estate, negotiating a longer retail lease term can lead to better base rent terms, while seeking lower early termination penalty fees provides flexibility and peace of mind.

Adding a sublease clause allows the tenant to sublet the space if needed, and a co-tenancy clause protects the tenant if their business is impacted by a major anchor tenant leaving. Including a clause that prevents the landlord from renting to a competitor safeguards the tenant’s business interests. Lastly, carefully negotiating the “force majeure” clause ensures that unforeseen circumstances and obligations are addressed in the lease agreement.

Financial considerations

When negotiating a retail lease, know your budget, must-haves, and nice-to-haves before entering negotiations. Clearly defining your financial parameters enables you to negotiate a lease more effectively. Landlords typically set the initial rent higher than they expect to receive, so counter with a lower offer, usually around 10-15% below their asking price. This allows room for negotiation and finding a mutually agreeable figure.

Additionally, landlords often offer promotional periods of free rent, which can serve as a valuable discount or compromise, providing significant savings over the lease term. For a multi-year lease, ask for one free rent month per year, for example.

Property and space considerations

Verify the square footage of the space you’re renting independently to ensure accuracy and avoid paying for unusable areas. Secondly, request a fair “cure” period, which gives you time to rectify any lease breaches or issues before penalties or legal consequences apply.

Additionally, explore shifting HVAC responsibility to the landlord or negotiate caps on out-of-pocket expenses related to the system. Lastly, negotiate the fixturization period, which covers the time and cost of preparing the space for your retail operations. Ask the landlord to undertake necessary renovations or provide free rent during the fixturization period since you cannot fully use the space for business while it undergoes improvements.

Additional considerations

Contemplate hiring an agent or lawyer who specializes in lease negotiations to advocate for your interests. They may uncover hidden clauses, secure favorable terms, and ensure a smoother process. Additionally, consider negotiating on multiple locations simultaneously to strengthen your bargaining position and provide alternative options.

Don’t overlook the importance of negotiating for all available perks beyond the base rent, such as free parking or Wi-Fi, as these can offer long-term savings. Lastly, exercise caution when negotiating the “force majeure” clause, which outlines circumstances where rent obligations can be delayed or excused. Define the scope of force majeure and clarify the range of obligations it covers to protect your business from unforeseen events.

Negotiating retail leases involves some challenging complexity and trade-offs. However, these tips can enhance your negotiation strategy and result in a more favorable retail lease agreement.