Wednesday, 1 October 2014

12 Things Every Retailer Must Do Before Signing A New Lease

The RICS has produced a handy checklist of things for retailers to think about before signing a lease.

It's not exhaustive, but it covers the main points. Here's the list reproduced below with the RICS comments, plus a few extra comments of my own in italics.

1. Have you checked the payment frequency of your rent/fee? – is it weekly, monthly, quarterly; in advance or in arrears?  If your business can only support payments monthly in advance, ask the landlord, as often they will agree to this. 

2. Have you negotiated on the rent? - Research other rents and look at whether you will have any disadvantages compared with other shops close by, such as:

Is your sales floor split level?
Is your lease going to be longer than the standard
Is your shop set back from the others?

Your rent will be used as evidence against other businesses when they have a rent review or lease renewal, and vice versa.  If tenants don’t negotiate, it can result in a vicious circle of ever-increasing rents that can be damaging to local economies.

3. Have you asked for a rent free period?  The longer the lease, usually the longer the rent free period granted.  These are more likely to be granted if there are repairs necessary to the shop before you can fit it out, or where the property has been vacant for a long time.

4. Who is responsible for insurance? –What about the plate glass in the shop front? What about buildings insurance?  If you take on a pop up shop it may be that these costs are included in the rent, but a lease may state that you are responsible.

5. Have you agreed a ‘schedule of condition’? - Agreeing one limits your liability so that you do not have to put the property back into any better state of repair than it is at the start of the lease.  A small outlay could save you thousands of pounds at the end of the lease.

[If a new build, will you be getting any warranties from the contractor and professional team? 

Will defects be excluded from your responsibility, with the landlord made responsible for putting them right within the defects liability period? 

Does your lease include the structure or is it "internal" only? 

Make sure you have all the rights you need, for example over roof airspace if you want to affix antennae. 

Does the landlord reserve a right to erect scaffolding? If so, ensure your signage rights are preserved.]

6. Does your lease specify the use that you want?  Do not rely on what the landlord says; it is what is in the lease that matters.

[Is it any retail use or specific? Is there flexibility to change the use with landlord's consent, not to be unreasonably withheld?]

7. Is your 'use' allowed under planning permission? This is different to the use in the lease, so make sure you can operate under planning legislation.  Even if it says you can under the lease that is no guarantee that you can under planning law.

8. Have you checked that you are able to make alterations? Make sure there is a provision in your lease allowing this, particularly if they are extensive. This should all be included in your lease.

[You may need a licence for alterations for fit out. Do you have to reinstate at the end of the term? Consider your requirements for signage and colour scheme too - can you change these without having to get landlord's consent, for example if your corporate branding changes?]

9. Will you be able to assign or sublet the lease? Your circumstances may change over the term of the lease so this provision will make sure you have increased flexibility. Otherwise you end up committed to a property that you no longer need, for the remainder of the lease.

[You will probably be required to guarantee the obligations of your immediate assignee (an authorised guarantee agreement). Consider too whether you want to be able to assign to group companies. What about concessions or franchisees? Group company sharing?]

10. Do you have to pay a service charge? If there is a service charge, make sure you will benefit from those services, and if you won’t, don’t agree to that part of it.  Try and agree a cap on the level of service charge to minimise your outlay. [Does the landlord agree to adhere to the Service Charge Code?]

11. Don't forget to budget for business rates. Check if you eligible for small business rates relief and consider if it is worth appealing as the valuation may be too high.

12. Will your lease contain a break clause? These can be notoriously difficult to exercise if you don't comply with the conditions [see these past posts!]. Make sure you get expert advice on what the break clause conditions should be and get those agreed before signing the lease.

[Better still, insist on there being no pre-conditions to exercising the break clause - this is a crucial commercial part of the deal that you won't want watered down or, worse, jeopardised altogether].


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