Leasing notes

Since there have been some threads on leases lately, I thought maybe some notes on the subject from a class I teach at the local college as part of a business start up course might be interesting to some people. This stuff is pretty general but… Where there are numbers, they relate to our local market, not to leases in general. For what it is worth:

Location and Leasing major points: This list is not complete and should not be a substitute for legal advice. On the other hand approaching a site selection process with a basic familiarity of these issues can save you a lot of time and expense and help avoid some expensive mistakes.

I. Have a plan before you go looking. The plan should include all the basic criteria such as size range, budget, practical requirements, timing, and the basic type of lease you are looking for.

II. A typical lease for a downtown retail store (2000 feet, $27 per foot, 3% escalation, 5 years) is a contract to pay $350,000. Consult an attorney before you sign anything.

III. Everything in a lease can be negotiated except the basic legal form of a contract. That does not mean you will make progress on any issues but you may certainly ask. There are several ways to save or loose money in a complex agreement like a lease. Do not get so wrapped up in the starting rent figure that you loose sight of the other cost/savings centers. If you have followed the advice in I. you will know better what to ask for and what your minimum requirements are and will be able to evaluate the offer. There are generally accepted practices but no right and wrong in what makes a good deal or a bad deal. You really need to look at the whole package in light of your specific needs. Don’t forget the give and take of negotiation.

  1. What kind of place do I need?
    a. Location, Location, Location
    b. How big? Do you need room to grow? How do you figure out what size?
    c. What specific features and practical characteristics?
    Examples: Visibility, Ceiling heights, Utilities, Windows/ lighting, Loading, Access, Storage
    d. What image?
    Who will visit your place of business? What impression do you want or need to give?

  2. How much can I afford? Get used to looking at numbers per square foot.
    a. What is occupancy cost?
    b. For non-retail businesses; what do you need to spend to get the facilities you need to have?
    c. For retail businesses what is the relationship of location to sales?
    d. What should the relationship of occupancy cost to sales be?

  3. The Lease.
    a. Term and options
    b. Obligations and risk
    Personal guaranties
    Holding over
    c. The Money Buckets
    Base Rent
    Percentage Rent
    Rent escalation
    Triple net expenses / CAM
    Definitions of triple net expenses (maintenance, regular maintenance, replacement, capitol, structural, delivery of utilities, fees)
    Tennant Improvements
    Rent holiday
    Penalties and fees
    Commissions paid

  4. The build-out. Needed? Negotiable?
    a. Existing building
    b. New construction


Just wanted to thank ya for all the information you supply us not only about leases but just the wealth of information you willingly pass along to us. Very much appreciated…and as jrockk would say
YOU DA MAN!!! :lol:

Thanks for yesterday…you calmed my nerves and helped me feel confident in the counter.



You are most welcome. How did it go?

We countered, they asked for an extension of our deadline and we should know Monday. Ends up the buyer is a tiny pizzeria down the road from us, on the town square which opened about 2 years ago. (But also owns a very popular sports bar in town next to us and owns all kinds of residential real estate around here) So we shall see. They may be toying with us but I don’t think they would go through all this trouble…