Friday, November 23, 2018

Differentiating Between Good and Bad Leases


In Business - Sometimes it's really difficult to separate ...'the GOOD' from 'the BAD' ... and the bad, from 'the UGLY'. 

Most of the entrepreneurs we've worked with over the years go into business because they really are good at what they do, and want to now do what they've mastered in a business of their own. 

That makes a lot of sense doesn't it? However, what's frequently overlooked is that just because someone is good or proficient at what they do - doesn't automatically mean they will be successful running a business that does that type of work or provides that type of service. There are many other facets of a business that the former 'employee' turned business owner will now have to appropriately address. There's a long list of functions and responsibilities that need to be considered.

Going through a business planning process as we do with our clients helps entrepreneurs look at the bigger picture, helps to organize the business, and improve your chances of success! Let us know if you'd like to further explore this as you'll see mentioned at the end of this post. 

Now here are some very important considerations with respect to you Commercial Lease agreement. Thanks to our friends, Dale Willerton and Jeff Grandfield with The Lease Coach.  Please enjoy their contribution!

Dale Willerton and Jeff Grandfield

Negotiating Commercial Leases & Renewals FOR DUMMIES
Differentiating Between Good and Bad Leases – For Commercial Tenants

By: Jeff Grandfield and Dale Willerton – The Lease Coach

As we explain in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, a bad lease agreement may hold you back from making a good profit or even result in the closure of your business. Great entrepreneurs in poor or mediocre locations will never reach the full potential that a better location may offer. On the other hand, perhaps you’ve picked a great location, but leased too many (or too few) square feet; this can prove to be a problem as well.

Combine a poor location with a high rental rate and you have a recipe for disaster. Your business will never succeed, let alone sell for a profit. Too many business-owners are shopping for cheap space, but for the most part, get what they pay for location-wise. This isn’t to downplay the need for skillful negotiation; you don’t want to pay too much for a good location – it’s all relative. In many of the larger plazas and enclosed malls, the property may be recognized as an excellent location, but getting stuck in a quiet area of the property may make your business less visible than you would like.

Another factor can be a lack of adequate parking for your customers. One tenant The Lease Coach worked with for a midterm rent reduction came to the unfortunate realization that their newest location was parking starved. Just when people wanted to visit, the parking lot was already full of vehicles. Customers parked briefly outside the front door, came in to complain that they couldn’t find a parking space even close by, returned to their cars and drove away.

A good lease agreement will contain primary business terms (rent, size of location, term length, etc.) that are essential to the completed lease deal but will only make up a small portion of the lease. The rest of the lease agreement contains hundreds of secondary or ancillary clauses that may or may not be financial in nature and are, typically, written in the landlord’s favor. It is a common mistake for entrepreneurs to overlook these terms feeling they are simply “standard”. Many of these terms can be adjusted to reduce potential negative impacts to your business or limitation on future rights.

Making a good lease great means removing, deleting, or negotiating restrictive clauses in the lease agreement that will hold your company back. For some commercial tenants, the renewal-option clause can be the difference between whether you get to stay in your location for the long term allowing your business to grow. A demolition clause can force you to move out of your premises if the landlord wants to knock down the building and put up another type of building. A poorly written relocation clause can force you into a costly move. If a business-owner wants to sell their business and assign their lease agreement to the buyer, the lease must have a comprehensive lease agreement clause. However, commercial landlords often include conditions controlling or potentially prohibiting the lease assignment (unless suitable wording is added for the tenant’s protection). An exclusivity clause prevents your direct competitors or neighboring tenants from offering the same services or products. Review the hours and days of operation required in your lease; you may need to negotiate modified days or hours when it’s unprofitable to stay open. These are just a handful of examples of why it is important to read and negotiate all the terms of your lease before signing. 

Brevity in a lease agreement is the enemy of most commercial tenants. A good lease agreement is longer, not shorter. Never just assume that what the lease doesn’t say will play out to your benefit later – it won’t. As the commercial tenant, you want everything that could possibly be an issue addressed in your lease agreement. Remember, it’s often what is missing from a lease agreement that really comes back to haunt the commercial tenant.

If you plan to sell your business, try to think in terms of whether you’d buy this business based on its current lease agreement. As a prospective buyer, what parts of the lease agreement would you not like? Would the rent seem high? What about the Operating Costs (Common Area Maintenance / CAM costs)? Would a shortage of parking or an undesirable neighboring tenant drive away your potential customers and buyers of your business? Are there renewal options valid to a future buyer? Thinking about these issues beforehand can make all the difference in your decision-making process.

All of these are scary scenarios requiring proper guidance from a professional who is working for you, being paid by you, and serving your needs.

For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com..


Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.





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