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    7 Replies Latest reply on Mar 8, 2008 6:58 PM by Uncle Leon

    Lease negotiation question

    AggieDavid Wayfarer
      Hi all,

      My wife and I are opening a small women's clothing store. We have done all of our research, BP, etc. We have found a great location and we are negotiating the lease. The initial offer from the potential lessor is fair and a good starting point. He has offered to pay 50% tenant construction allowance, free rent for two months after we open and he has set the rent low for the first few years to get the business up and running.

      There is one issue I haven't talked with him about that I would like some advice on before countering with our offer. The air conditioner for the space is shot and needs replacing. The landlord is offering to pay 50% tenant construction allowance and so far the A/C would be included in this allowance. My contention is that the A/C should be his expense alone and not part of "build-out". The space is in Houston, TX so I would argue that the A/C would have to be replaced (at his expense) just to bring the space up to "leaseable quality". Is this a correct assumption?

      Any help/thoughts on this subject are much appriciated,

      AggieDavid
        • Re: Lease negotiation question
          LUCKIEST Guide
          Welcome to this web site and good luck with your women clothing store.
          Do you have a Business and Marketing Plan?? Do you know about SCORE?? SCORE is FREE.
          Do you have a Lawyer. Every business person should have an Accountant, a Lawyer and an Insurance Broker.
          You say that "The initial offer from the potential lessor is fair and a good starting point"
          One: Continue talking to the landlord, Two, Talk to your Lawyer and MOST of all
          (as Lighthouse said recently) let the landlord feel like he has helped and been MORE than fair.
          Good luck, LUCKIEST
          • Re: Lease negotiation question
            Lighthouse24 Ranger

            The longer the term of the lease, the bigger the percentage of alterations and improvements the prospective tenant can expect the landlord to pick up the tab for. I'd certainly expect the landlord to provide electrical and plumbing systems (including HVAC equipment) that were fully functional if this were a three-year lease. If your store design demanded a higher capacity system, then you might be expected to pay for a significant portion of that upgrade -- but if the existing unit would be adequate (if it only worked), it would be an exception rather than the norm for you to bear half the cost of fixing it.

            As I said in the post Luckiest referred to, maybe he is just "pitching high" -- hoping you'll agree (but not really expecting you to). Along that same line, who is responsible for maintaining the unit (keeping it operating) once it is repaired or replaced? If you're expected to pay for any part of that (filter changes, annual cleaning/servicing, routine adjustments, etc.), then it's reasonable to ask that he provide a unit that's in good shape to start with. That might be a negotiating counterpoint you can use.

            Hope this helps. Best of luck!
              • Re: Lease negotiation question
                AggieDavid Wayfarer
                Thanks Lighthouse! Your comments are my sentiments exactly. He originally pitched a 5 year lease. We are going to counter with 3 years. We would be responsible for any repairs to the A/C unit so I really feel he should pick up the tab on the replacement.
                  • Re: Lease negotiation question
                    Uncle Leon Tracker
                    you are absolutely correct to insist (diplomatically) that the air conditioning be serviceable when you move in.

                    As to the 5 year / 3 year question, I understand your concern (in case the biz doesn't succeed, or you need to move for some other reason). However, you may want to consider how being forced tom move may effect your business. (The need for your customers to find you, again, etc.).

                    May I suggest 3 years with three 3 years renewal options. Also consider what standard is reasonable to tie the rent increases to when renewing the lease.

                    Or...Perhaps he will allow you a 3 month move notice "escape clause" if you sign for 5 years.

                    Addendum: Records show that a woman's dress shop is one of the most likely businesses to fail. I don't mean to be negative...just providing info.
                • Re: Lease negotiation question
                  AggieDavid Wayfarer
                  Has anyone actually encountered this scenario in a lease negotiation? Anymore insight would be appriciated.