Forums: Discussions for entrepreneurs and small business.

Greetings to all,

  Anyone who has any experience in the skilled art of negotiating a lease agreement for a retail business, I would greatly appreciate your assistance.  Information is as follows:  I am looking to establish my business, but not quite sure of the nuances of the negotiation process.  I`ve heard about CAMS, price per square foot, Insurance and even a percentage of profits to the landlord.  But haven`t heard much about the marquis or advertising sign, completion of buildout (drywall).  I`d guess I`d do my own painting, carpeting and electrical wiring.   I am in southern California, and have been finding the price range averaging at or about 2.00 to 3.00 per square foot.  I am looking to obtain approximately a 2200 sq ft facility.  Since this is my first store I am trying to keep my overhead low, but at the same time give myself the best chance at success. 

  If you have any experience in negotiating for a commercial lease, I`d greatly appreciate your assistance.  Thanks  

Ron

Hi Ron - Although my experience is mostly in Office lease negotiations, I have done several retail deals.

Most stores are offered on an "as is" basis.  That means you are completely responsible for the build-out and fixturing of the store.  The first thing to do is to see what`s there.  Is there HVAC (heating, ventilating & air conditioning), light fixtures, ceiling tiles, complete electrical system, bathrooom & plumbing, etc.  Is it all in working condition & compliant with the latest building codes, etc.

Do not assume that you can do the work.  Most landlords will require professionals that are experienced. licensed, insured & bonded.  Most municipalities have similar requirements, plus in many cases architectural drawings need to be prepared, approved by the landlord and filed properly so that you can get a building permit.

Depending on the current condition of the store, construction costs can run from a minimum of $10/square foot (minimal work - painting, carpeting, etc.) to over $100/SF.  And don`t forget, these are costs that need to be paid in full, up-front before you even open up!!

From the info you provided, the rent will be in excess of $60,000/yr plus CAM (Common Area Maintenance) charges, real estate taxes, electrical, etc., etc., etc.

You will need a good real estate lawyer to negotiate the lease for you - don`t even think about doing it yourself!!!

Most retail leases are for an absolute minimum of 3 years to 10 years or more, so you will commiting yourself (with personal guarantees) for hundreds of thousands of dollars, plus your upfront construction costs, plus fixtures, plus inventory, plus salaries for employees, plus, plus, plus.

This is a tremendous undertaking and unless you have $500,000 + to invest (and possibly lose) in this venture, I would think very, very carefully before you begin.

My advise is to try to first sell your product(s) online - eBay, your own website, an Amazon store, etc.  You even may find that there is no need for a real store.

If you must have a store, I would first try to find a retailer in your area that sells complimentary merchandise and then see if you can negotiate a concession within his store on a month-month or short-term basis.  This way you will save on most of the upfront costs and you won`t lock yourself into a long-term deal.

Another option are those free-standing kiosks that you see at the mall.  I`m sure that you can rent those short-term.  If things work well, the landlord would be very happy to upgrade you to a real store if any are available.

I don`t want to throw cold water on your idea, but please proceed very cautiously.

Hope this helps - Jeff.


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Jeff,

Great response.  I found this extremely informative and exactly what we encountered when searching for retail space.   

Thanks,
Charlene

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Charlene Frias
Orange Cupcake
orangecupcake.com
818.884.6401

Hey all,
A kiosks in your local mall sounds like a great idea, but there
are issues there too. I attempted to get a small kiosk... roughly
an 8 foot by 5 foot table. OK, it wasn`t really a table, it looked
nice but the actual fees and surrounding costs can kill. In San
Jose Ca, the fee was $2500 a month off season (Not
Christmass) and up to $7000 a month on season for the same
space. The mall also requires a third party window (in this case
counter and shelving) decorator. Of course they give you a list
of suggested designers to call. But all in all, they explicitly say,
you must have everything done (displays, signage, colors,
power and phone connections) professionally. In my situation,
it meant $2500 for a 3 month minimum lease + those contractor
and other little (not so little) costs.

Not trying to discourage you. Just want you to be prepared.

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Vincent Wilcox (a.k.a. KRAKR)
Drummer
My band: Letters Make Words