Learn before you lease

Because rent is probably your largest expense, some of the more important words you’ll ever read fill the pages above the dotted line in your lease. So before your pen hits the page, get the keys you need to lock yourself into this legal agreement, safely. The last thing you want is some oversight or error to kick in the door. When you properly prepare before signing, you protect the very roof over your head—and your rightful place under it.

Pick Your Place
The structure that houses your garden center, and its location, are crucial. Look for space in an area with actual or potential commercial growth. Consider your garden center’s development. How fast are you expanding? How much physical room does your business need now and in the future? Too small and you’ll pay more for moving expenses when you’ve outgrown the space. Too large and you’ll pay now for more space than you need.

Even if you’ve found the perfect site, the landowner still has to pass your scrutiny. Meet the person, and before you go any further, check references. Find out from several current and previous tenants the landowner’s track record in meeting responsibilities. If you’re satisfied with what you’re hearing, you’re ready to turn an equally critical eye toward the lease.

Learn About Leases
A lease is not just an agreement between parties; it’s a legally binding agreement. There’s no such thing as a standard lease; its customized contents depend on the criteria you negotiate.

Leases can be short-term (one to five years) or long-term (five years plus). For both, there are three general types, each one determining the monthly rent you pay.

The rent with a triple-net lease does not include taxes, insurance, maintenance and other costs; these are extra charges for you. Only one of these extras is required with a net lease. A gross lease includes all of these charges in your rent.

Know the advantages and disadvantages of these lease types, as they relate to your garden center. That way you’ll know if you disagree with the landowner’s preference, and whether you should negotiate for a different lease type, or rent from someone else.

Navigate a Negotiation
All commercial leases leave room for negotiating with the landowner, and if yours doesn’t, then prepare to walk.
The whole point of haggling is for both parties to try to get the best deal. So do it well. For starters, wait to pitch your terms. “Always let the landowner go first,” said Paul Wineman, of Paul Wineman & Associates, professional contract negotiator in Marina Del Rey, Calif. And take a day to consider the landowner’s offer. “Never agree immediately. Think about it and come back the next day with your answer.”

Not sure whether you’re good at negotiating? Consider a third-party professional to dicker for you. At any point along the way, should the landowner show inflexibility or irritation at your offers or counter-offers, that tells you something. Chances are the person would be just as unreasonable with you when it comes to repairs or other tenancy concerns.

Tackle the Terms
Before negotiations, be clear with yourself about what you want in the lease, while remaining open to the possibilities. Whatever your garden center’s size or type, carefully consider these main terms of the lease:

Monthly rent. “Pay less in the beginning years and more as you go, and negotiate a cap,” said Wineman. “With a long-term lease, it’s not uncommon to ask for one free month’s rent every year, though you may not get it.”

Security deposit. “This should be no more than one month’s full rent upon execution of the lease,” he continued. “If you’re a good tenant, it should be returned to you after your first year, because you will have proved yourself.”

Common areas. Pay a percentage only of shared spaces that your business has access to and uses. “Maintenance of these areas should not exceed 10 percent of your total year’s rent,” said Wineman.
Taxes. Pay these proportionate to the square footage of your rented space and based on the first month that you rent that tax year (not future years), as well as annual real estate tax increases.

Insurance. You’ll need this to protect your business and its premises—and your landowner from any lawsuits you may sling their way. Most landowners set a minimum coverage that they expect you to pay, unless it’s included in the rent.

Signage. Unless the landowner of a multi-retail building requires design consistency among all exterior signs, insist on your own rendition (subject to county code). But try to get the landowner to pay for installation.

Exclusivity. Write into the lease that the landowner is prohibited from renting space in the building to other garden retailers. It’s hard enough to deal with the competition without having them right next door to you.

Equipment and furnishings. Do you want any of the fixtures or items left by the landowner or previous tenant? Negotiate accordingly for them to remain, or be repaired or removed.

Business hours. State your hours of operation in the lease. Also write in that your business should be continually open during that time, and physically accessible to you and your employees outside of those hours.

Privacy. “Make sure the landowner and any hired workers don’t traipse in and out of your space unannounced anytime they want,” said Wineman. “The lease should state that they must ask you for access 24 hours in advance.”
Improvements. Let the landowner pay for upgrades to floors, ceilings, roof, electrical, HVAC, plumbing and sprinkler systems.

Expansion. For all you know, your garden center could grow out of its current square footage. So just in case, ask to have the “first right” to lease additional space, if available, or to purchase the building.

Renewal. Several months before lease’s end, “negotiate for another five to ten years at 90 percent of the current market,” said Wineman. A reliable tenant deserves the discount, which a landowner appreciative of that loyalty happily gives.

Sublet. Say you want a separate, complementary business on your garden center premises, or you want to hold onto this location but move your company to another. Make sure the landowner lets you sublease your current space.

Demolition. Watch for this clause, which allows the landlord to terminate the lease (with notice, but often without compensation to you) because of the building’s demolition, redevelopment or sale.

Escape clause. If slow or expanded business squeezes you out of your location, negotiate to pay three to six month’s rent beyond your last month of occupancy. “With a long-term lease, especially, most landowners will agree to this,” said Wineman.

If you commit to a long-term lease, “make sure it’s to your benefit,” he urged. Certainly, for signing on for such a long time, you deserve from the landowner any reasonable perks you can get—a small price for them to pay, since it’s worth the assurance of steady rental income from you.

Look Before You Lock
A fair and reasonable landowner will also appreciate your need to spend time with the negotiated lease. You’ll probably understand most of your lease, but for the parts you don’t, hire a lawyer to peruse them. This person can also conduct searches regarding title, zoning, work orders, pending lawsuits and judgments against the landowner and bankruptcies. 
 
Until you’re clear about every word in that lease, don’t sign it! The day you do, you should feel confident that you’ve done all you can to enter into the best rental agreement for your garden center.

Claire Sykes is a freelance writer in Portland, Ore.