1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.
  2. WELCOME Grumblers
    Backup is now done at 3PM EDT. You may find the server down for up to two minutes at that time.

Negotiating a lease- need advice.

Discussion in 'Picture Framing Business Issues' started by Annabannana, Aug 25, 2001.

  1. Annabannana

    Annabannana Grumbler in Training

    I have been trying to purchase a frame shop from a couple who is retiring, but the deal fell through this week (probably was for the best). I had an idea this might happen so I've scoped out a location to open up a place all my own. I found a new shopping center in an upscale location that is looking to add a gallery/frame shop and I wil be meeting with the management company next week to go over the lease. I was wondering if anyone out there who has ever negotiated a lease would like to share some of their wisdom? I am new to this and I don't want to miss something crucial that may come back to haunt me later. Any advice or ideas will be appreciated.
     
    American Picture Frame Academy 1-888-840-9605

    The American Picture Framing Academy Learn Picture Framing Now
  2. jvandy57

    jvandy57 SGF, Supreme Grumble Framer

    Anna,
    Spend some money and hire a lawyer that specializes in Leases. Have him/her go over the lease for you and point out any and all items that are questionable. We didn't do this the first time, should have though!



    ------------------
    Jerry Vandergriff, CPF cm
    McCue and Blanford Frame Shop Supply
    Crestwood, KY
     
  3. artist

    artist CGF II, Certified Grumble Framer Level 2

    Anna - one important point is to NOT SIGN THE LEASE IN YOUR NAME- PERSONALLY- SIGN IT BY CORP. OR COMPANY NAME. That way if somthing happens you are not liable personally. Yeah- get a lawyer you can trust,(if you can find one) Ive been in business 16 years (resturant and frameshop and have gotten 16 years of bad advise!!! I don't know how we survived thus far.
     
  4. Frugal Framer

    Frugal Framer Guest

    Anna,

    In additon to Jerry's comments regarding an attorney, we hired the equivalent of a professional negotiator to work out the big ticket items with the landlord before the negotiator revealed who the prospective tenants were going to be (us). Since we don't check the commercial rental rates that often, it made sense to let someone do it for us who was familiar with the game that commercial realtors or management agencies play on a daily basis.

    Rick Bergeron - CPFcm
     
  5. Annabannana

    Annabannana Grumbler in Training

    Thanks all. I do have an attorney who is looking out for me. He has been my father's business lawyer for 25 years and I trust him a great deal. I am doing my best to act interested but not eager to the leasing company. A couple of months ago I made a list of all the areas around Raleigh I would like to set up shop in and this community was on the top of my list. The rent will be hefty, but I believe it is the best retail location in the region (without being in a mall).
     
  6. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    Anna-We have a fair amount of experience in leases, and since you don't, my suggestion is to hire(if not too late) a commercial broker. If landlord pays broker participation, it costs you nothing. Most do.
    The single biggest advantage you will get is someone that works for you (paid by landlord) that really understands your market. This person will know the prevailing rates, the prevailing locations and the landlords. Unfortunately, an attorney probably doesn't. An attorney is wise for the legalities of the contract(everything is negotiable), but probably doesn't know if the CAM is high or low, if the space has been vacant for any length of time-things that are much more site specific. A professional broker will, and these are factors that have far more consequences than almost any other consideration.

    Artist recommends to never sign personally, always sign as a corporation. Good luck. Most serious landlords want to be protected to the max. A personal guarantee is very normal in highly desirable locations: simply because the landlord can get it.

    I would be leery of any landlord too eager to waive many things and giving away too much in L/H improvements or free rent. That's a big time red flag that this is not a highly desirable location. The free rent goes away in a few months; the lease last much longer. It's like buying a car with no payments til 2002, sooner or later the payments start and they go on seemingly forever, if it's not a good deal.

    Get a broker and let a pro go to bat for you; it's what they do best.
     
  7. JRB

    JRB PFG, Picture Framing God

    Why is it that landlords in these crumby little strip malls think they are so darn important?

    Rick is right on the money with his advise, spend the bucks and hire a pro. it will be the best money you ever throw away.

    If you don't want to hire a professional negotiator, do it yourself and be hard as nails.

    My current location is 5000 square feet in an out of the way location. The landlord wanted $3,000.00 per month for it, I offered him $1,500.00. I threw in a carrot for him to nibble on, OR ten percent of the gross sales, whichever is greater. The guy laughed at me and that was the end of it, we shook hands and I left. Three month later he came into my store and wanted to know what my offer was again [​IMG]

    In retail your rent should not exceed ten percent of your gross sales, keep that in mind before you make any deals.

    Ask yourself, if the landlord wants 3000.00 + triple net (find out the amount for triple net)( it is usually around three or four hundred on a three thousand dollar rent), can I average $34,000.00 a month in sales? If your answer is yes, then go for it, if it is no and you go for it anyway, I doubt that you will survive.

    Also, make sure you get three months free rent for set up time.

    Ask the landlord what improvements he is willing to do on the space in order to get you to rent from him. If he says nothing, you tell him what you expect in your offer to rent.

    In my last strip mall location, the landlord put up $18,000.00 worth of signs, a new floor, raised the 8' suspended ceiling to 10", built walls, an office, a compressor room & painted the whole place for me.

    What you have to remember is, YOU, are the prospective landlords customer, he has to kiss your butt, not the other way around.

    Get all you can from the landlord, you are going to need it.

    John
     
  8. framegroup

    framegroup Grumbler

    Anna-
    You have been receiving great advice from everyone. Just a few added thoughts…
    JRB talked a little about having the landlord do work for you. This is a great idea that can help you get a nicer store for less cash out-of-pocket.
    Landlords are often more willing to provide tenant allowance (or ‘build-out’) money than rent concessions. One of the reasons for this is that property owners generally want to maintain flexibility to refinance their properties. If they have populated their center with low rent leases, their lender will look upon that in a negative way.
    On the other hand, money for tenant improvements or free rent are valuable perks for you that quickly become a non-issue for the landlord and their lender. You would do well to pursue this avenue.
    Also, landlords are frequently willing to take a lower rent in the first several years to help you get established and then to offset it with a higher rent in the later years. This approach might help your initial cash flow.
    Don’t forget to address issues such as lease term and option periods. A shorter initial lease term will limit your liability if your business doesn’t work while a pre-negotiated option period will give you the security of knowing that you can stay longer at an agreed upon rent. The major problem with a shorter lease is that it will reduce the landlord’s willingness to contribute tenant improvement money.
    Regarding personal guarantees… It is great if you can avoid them but I agree with Bob Carter that most landlords demand them. Try having them limit it to a certain dollar amount (such as $10,000 or 1 year rent).

    Good Luck!

    Marc


    ------------------
    Marc Bluestone
    FrameGroup Incorporated
    marc@framegroup.net
     
  9. Cheryl Crocker CPF GCF

    Cheryl Crocker CPF GCF CGF II, Certified Grumble Framer Level 2

    What leasing agency is this? I have dealt with Tricor (out of Florida) and Edens and Avant (out of S.C.). If you have not been incorporated for at least 5 years, you will almost always have to sign a personal guarantee. And provide a list of assets.

    Get everything in writing. If the leasing agency says they provide signage, get it put into the lease....whatever it is they say they will do.

    N.C. now includes a ground contaminant testing clause... make sure the ground water/soil is tested with results prior to renting.

    The bids for landscaping/maintenance whatever else is included in CAM should be open to local businesses. We had to fight our first landlord to get a local crew to do snow removal instead of shlepping up theirs from the coast (half the time they couldn't get up, all transportation/lodging costs were added...ridiculous). Our CAM went down thousands of dollars a year for the entire unit by keeping everything local.

    We had the 10% clause in our first lease, but only applied after we started grossing $250,000/yr. No problem the first two years. The third we surpassed this and also resigned for an additional 3 years, but had all art sales and anything imported exempted from the percentage. Given 90% of our moulding was Italian, this ended up saving us a ton of money.
     
  10. Annabannana

    Annabannana Grumbler in Training

    Wow, what great advice. I will do my best to protect myself. Let me tell you a little about the shopping center. This is a brand new shopping center that will eventually contain 4 blocks of 10-15 retail shops each, 3 office blocks of about 20 offices each (2 story buildings) 2 free standing resturants and a free standing gourmet market. I am looking at a 2,000 ft corner location that is directly across from market that will be finished in Feb. The owners are allowing $30 per sq foot for interiors (there are no walls on the inside of the building at this time)- so I get to totally design the inside of my shop. I have decided already to try to negotiate a lease that is lower the first couple of years and gradually work up to their asking lease price. I know they have been selective with who leases space (I heard a couple of chineese resturants were turned down) and I was told they have been looking for a nice gallery/ frame shop to come in. We'll see what happens the next week or two...
     
  11. Framing Goddess

    Framing Goddess SGF, Supreme Grumble Framer

    The Goddess is going to repeat a great piece of advice from the previous replies...
    Get yourself a real estate attorney NOW. Friend of the family or not, this attorney needs to have experience with retail leases like the one you will see. Allow some time for negotiations to take place and for revisions to the lease. It will cost you several hundred dollars for this and will pay off ten-fold. And it IS true-- EVERYTHING IS NEGOTIABLE. Try not to be romanced by the "exclusivity" or "desirability" of a strip mall. Since it is a new shopping center, it has no reputation just yet. Yeah, they're selective alright-- they only want businesses in there who can pay the rent! Oh, I'll stop the attitude...
    Other things to keep in mind with a new shopping center... you may be the oasis there... surrounded by empty storefronts... might be a rocky start. Also, trying to do business in a center where there is ongoing construction will make things VERY difficult even for an established business. If I were you, I would actively pursue existing centers, as well.
    But since you are also a new business, you probably will have to sign a personal guarantee.
    And 2000 sq. ft. is pretty large for a new business-- can you possibly consider 1000 sq. ft. and still be in that corner location?
    Also make sure your real estate attorney includes a clause in your lease having to do with exclusivity-- no frame shops three doors down, please!!!
    E the FG
     
  12. Audrey Levins

    Audrey Levins MGF, Master Grumble Framer

    Before you spend money on a lawyer, take a copy of the contract to your local SBA chapter; they will look over it for free, and advise you as to whether or not you really need to hire a lawyer to negotiate with you. A SCORE rep will even come to your shop for a couple of weeks and show you how to set up your book-keeping, etc. And if the landlord doesn't want to give you a copy of the contract--unsigned, of course--run away immediately. Any business on the up-and-up should allow anyone to read their contracts. And the SBA is a powerful tool for new business owners; it's always a good idea to run any questions or concerns past them.

    It's also a good idea to ask about rent caps; it's one of those things that never crosses your mind until one day your landlord doubles the rent out of nowhere. (A lot of places will agree not to raise the rent beyond a certain percentage.)

    But I will agree with the Goddess about looking at existing shopping strips as well; a new strip is not going to be inclined to be very generous because they haven't made any money yet.

    Also--be sure to ask if they are going to advertise at all; if they aren't, you're going to have to do all your own advertising and the lease isn't worth as much to you.

    And good luck!

    ------------------
    I don't care what color your sofa is.
     
  13. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    I may have not made myself clear on getting a broker. A broker is a licensed person that secures leases for clients (just like a real estate salesperson, they earn a commission on their work-paid by the landlord). These people deal in the market and they know the landlords and the various properties. The have a frame of reference of what the going rates are, what normal L/H allowances are-they know they market. They work for you by law, but are paid by the landlord for bringing you to the table. It may be to late for you, now. Check with your local pros.

    A lease controls everything that happens for the life of the lease. Landlords can't raise your rent just because they want to, nor any fees. That's why you have a lease; it protects your rights for a period of time, but also making you responsible for the same period. One thing you can control is by asking for caps on Cam charges. Everything else is predicated on actual costs.

    But get somebody (attorney, broker) fast to help you. Some of the info posted, while well meaning, is not quite accurate.It's time for a pro to step in. You won't be sorry.

    Marc did have an excellent piece of advice on averaging your rate. If the rate is $30 sq ft, ask for a few years at $25, a few at $30 and a few at $35. Landlords are ameanable to this and it does a couple of things:First it allows some breathing room in the early days. Second, when the lease comes due down the road, you don't experience sticker shock at the rate in 5 years.
     
American Picture Frame Academy 1-888-840-9605

The American Picture Framing Academy Learn Picture Framing Now

Share This Page

Sponsor Wanted