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Five Tips for Signing a Lease Agreement

You want to start a business and are desperate for a good location. You find an open retail space and are well aware of the competition for floor space. Don't just sign because you are afraid you'll lose the space.

Find out whether there is a turnover clause in the agreement

The turnover clause normally stipulates that you must pay a percentage of your monthly or annual turnover together with the monthly rent. Some turnover clauses stipulate that if your turnover is higher than a certain amount, you will have to pay additional fees to the landlord. If you are in a business with a low profit margin, don't sign the agreement. It penalizes you for productivity and will cut huge chunks from your profits. See if you can't get the percentage lower and get the penalty clause scraped.

Period of lease agreement

The landlord will try to get a long term agreement of three to five years. You should negotiate for a one to two year contract with automatic renewal unless you give notice. Opening a new business is risky. Yes, you believe that you will succeed, but you have to make sure that you don't get stuck with an unreasonable contract or landlord. You can sign an option to change th econtract to a long term contract after twelve months. This will give you the opportunity to see whether your business will make it or not and prepare you for sudden increases of rent. If you are a manufacturer or will have a large shop fitting layout, go for two years.

Annual escalation in rent

Use caution when the contract stipulates 12 percent or higher. It should be the same as the rest of the market and in line with inflation. Ask for a set increase if the contract doesn't stipulate it at all to prevent unwanted surprises later on.

All inclusive rent

The contract must stipulate what you are paying for. Does it include electricity, security, center management, marketing, and parking? Check for hidden costs.

Renewal of the retail lease agreement

How will renewal be determined? Try to get automatic renewal rather than negotiation and have the escalation stipulated in the contract.

 

Author: Isebell Gauche

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