Guest Column: When renting space is preferred over buying

March 31, 2017

March 27/April 3, 2017: Volume 31, Issue 21

By Vinnie Virga

 

(Second of two parts)

In my previous column, “Upgrading your store’s location,” I discussed the advantages—and timing—of upgrading a retail location (FCNews, February 27/March 6). In the second installment, I will review the benefits of renting a space when buying is disadvantageous or not an option.

If you are going to rent, and it isn’t in a strip mall or with other tenants, be sure to arrange the following provisions:

  • First Right of Refusal. If the owner decides to sell and has a bonafide offer, you have 30 days to purchase at the offered price.
  • Option to buy. You have the right to buy, at a pre-agreed upon price (negotiate this sooner rather than later), and a portion of the rent paid goes toward the purchase. A good trick is to also have the purchase and sales agreement decided on in advance by your attorneys to avoid problems later.
  • HVAC service. The equipment must consistently maintain an in-store temperature of 70 degrees or the landlord must fix at their expense.
  • Repairs. Roof replacements, which can be expensive, are the landlord’s responsibility.
  • Upkeep. Determine in advance who is going paint the building, seal coat the parking lot or fix the exterior lights, etc.
  • Review renewal options. Lock in the rent; don’t agree to automatic increases, or negotiate lower hikes. Landlords must pay to retrofit every time the tenant changes and their cost for owning the building doesn’t change. All increases equal more profit from the building for the landlord.
  • Tenant improvement provisions. Most landlords will provide $2 or $3 per square foot toward renovating the space when you first move in. If this isn’t necessary, request the allocation be applied towards 60-120 days of free rent. If you do need changes, have the landlord or owner pay for them. If your changes will cost more than that, negotiate terms that stipulate the landlord or owner pay for them, and for your rent to be slightly higher to offset their higher cost.

If you’re considering renting in a strip mall here are some tips:

  • Make sure you know the zoning laws, restrictions and easements.
  • Ensure there are no open violations. Check roof, HVAC and other structural issues. Make sure the location is ADA compliant.
  • Try for “Gross Leases” if possible.
  • Good deposit, buyer can terminate for any reason during due diligence.
  • Possession date based on permit.
  • Rent starts based on days after opening.
  • Pre-approved sign, pre-approved changes.
  • Try to get near an anchor, such as the parking lot of a home center.
  • Always try for an end cap nearest the entrance.
  • Assigned parking spaces are vital. Make sure you have enough for your customers to have easy access near the front of the store.

 

Screen Shot 2017-03-06 at 10.51.13 AMVinnie Virga is managing partner and president of Big Bob’s Flooring Outlet and Floors & More buying group. His experience includes management of various CCA Global Partner retail groups, including Flooring America.

 

 

 

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