Shrewd Negotiations: Leases on Your Terms
BEFORE YOU SIGN on the dotted line, make sure you understand all the terms of your lease or you could be paying for that costly mistake for many years to come. As a partner in Western Reserve Advisers, Joe Mancino specializes in lease negotiations for small-to-mid-size retailers, restaurants and salon and spas, such as Philip Pelusi and Hello Gorgeous! He offers valuable insight into that lease know how.
ST: When it comes to negotiating a lease, what kind of help should a salon owner seek?
Mancino: “Under all circumstances, an owner should hire an attorney to do the legal terms and, if possible, someone with lease negotiations experience to represent them. The ICSC (International Council of Shopping Centers—icsc.org) is a good place to nd someone like this—they have 50,000 members who are developers and people that represent tenants. It would be a good resource to nd someone to help, even if an owner is just looking to relocate. The important part to remember: You are hiring people to work for you, not the landlord. A lot of brokers work for the landlord.”
ST: If an owner is in a long-term lease and it’s not working, what can he or she do to renegotiate?
Mancino: “Refer to the ICSC group if you need to renegotiate a long-term lease. And, contact your leasing person. A good leasing person will know you are not doing well by your sales figure. If your sales go down, try to renegotiate early, get rent reduced, and extend the term longer. Trade rent for term. If you don’t report your sales figures, the leasing agent is going to be looking for a P&L statement to show you aren’t doing well. I don’t believe there is a landlord out there who wouldn’t agree to negotiate early in return for a longer term.”
ST: When it comes to leases, what are some loopholes to watch out for?
Mancino: “Inevitably, problems arise after you’ve negotiated a lease (building out space, opening in timely manner, etc). Most owners are very optimistic and think because they have negotiated 150 days to build out space, that’s how long it will take. Take as much time as you can get before you have to start paying rent. Be sharper in your negotiations.
“There are certain clauses in leases to look for. One example: force majeure. If something happens beyond your or your landlord’s control: tornado, electricians go on strike, etc., there should be a force majeure clause (frees both parties from liability). You don’t use it that often, but if it’s there it can save a lot of headache and heartache.”
“A lot of leases as they are written today have escalations in them. Sometimes escalations are on the rent or an extra charge. They are tied to cost of living. You should cap the increases at the lowest percentage as it can go up a lot. Control the increases as much as possible.
“If you’re negotiating a lease of more than five years, always negotiate options. After five years, you have an option to renew for a certain period of time at a certain rent. You ALWAYS want that. This gives you the option to renegotiate your lease every time renewal comes up.
“NEVER sign a lease personally. Sign with your corporation. You don’t want your own assets tied up. If you MUST, do not sign for any longer than a year or two.”
ST: Has the recession opened up opportunities for owners looking for space?
Mancino: “Anyone who has a lease coming up in the next 18 months should explore opportunities to relocate. They will nd some landlords are very receptive to structure a really good deal for someone who has been in business for a long time. And this creates leverage with their existing landlords. One thing about salons: They generate the majority of their own traffic. So if your leasing situation isn’t extremely favorable, you should look for other solutions. This applies even if you are leasing an office building or a retail store. For anyone who’s looking to sign a commercial lease (retail, office, salon, etc.), they should have someone who is knowledgeable on the real estate side.”
For more information call Western Reserve Advisors at 330-533-8798.