Finding the right location for your small business is important. But business owners who rent their workspace also need to think about how they’ll retain it when it comes time for renewal. By understanding retail lease negotiation, you may be able to secure better contract terms and a more affordable rate when you renew your small-business lease.
Many business owners are currently facing staffing changes, reduced revenue and other significant hurdles. This can make coming up with monthly rent for a small business difficult. As a result, some small-business owners may be feeling uncertain about the future of their commercial leases.
Despite these challenges, there are ways to help make sure your lease renewal process goes as smoothly as possible. It starts with understanding how commercial and retail leases work, as well as some of the techniques for renegotiating leases.
There are some key differences between commercial and retail leases. A commercial lease applies to properties that are used for business purposes but not for the selling of goods. For example, office spaces, warehouses and distribution centers would all fall under commercial leases.
In a retail lease, tenants are permitted to use the rental property for the selling of goods directly to customers. Some common examples of retail premises include malls, shopping centers and retail stores. Unlike commercial real estate, retail spaces depend largely on foot traffic and walk-in customers for their business.
Commercial leases are contractual agreements that offer less governmental protection for tenants than residential leases. Each state — and in some cases, each jurisdiction — has its own commercial property laws. However, they’ll generally include variations of the following:
Business owners are granted “renters rights” when renting a commercial property. These rights will vary from state to state and can even vary based on regions within a state. However, some basic renters rights are protected by federal and state law, regardless of jurisdiction:
Commercial leases may not follow a standard format or agreement structure, so they may look different, depending on the landlord’s needs. When it comes time to have a conversation about commercial lease extension, it’s possible that your landlord will try to suggest changes in their favor.
That’s why it’s important to thoroughly review and understand your small-business lease agreement before renewing. This will allow you to effectively negotiate the lease with your landlord and possibly lock in terms that help transform your business for the better.
Although there’s no guarantee of success, the possible benefits of negotiating your small business’s lease could make it worth your while. You may be able to:
The lease renewal process becomes easier when you enter the situation prepared. Here are some useful tips to help you better negotiate your small business’s lease renewal:
It’s not uncommon for small businesses to experience financial ups and downs. If you’ve found some business expenses to cut but are still struggling to make rent, there are some relief options available that can help you avoid going into debt.
On some occasions, business owners may try to get out of their lease early. It may be because they need a larger or smaller space to operate their business effectively, or because their landlord has failed to uphold their end of the lease agreement. It could also be that their business can’t generate enough revenue to make rent. In cases like this, it’s possible to cancel a small-business lease prior to your renewal period.
Before you make a final decision, it’s wise to consider the pros and cons of breaking your retail lease. For example, getting out of your lease early could relieve you of rent payments and allow your business to move to a more suitable location. But on the other hand, tenants who want to break their lease could get stuck paying a penalty or fee, and may also harm their credit score in the process. And if your landlord disputes your reasoning, you may have to go to court over it, which may result in you being on the hook for the remainder of your contract plus any court fees.
You may have determined that breaking your commercial lease agreement is the best option for you and your business. If that’s the case, there are some best practices you can follow throughout the lease-breaking process:
Retail lease negotiation isn’t an easy task. But with the right knowledge and information, you can make the most of the lease renewal process. By understanding how commercial and retail leases work, you can better learn how to negotiate commercial lease renewals. You’ll enter your lease renewal negotiations with more confidence. And in turn, you’ll be more likely to negotiate favorable terms for your small-business lease that can benefit you well into the future.
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