4 Things to Consider Before Renting Retail Space

There are specific aspects to be thinking about when it comes to renting retail space, compared to other forms of commercial property. Some of these are to do with the building itself and its location, others are in the details of the leasing, the negotiations before you sign a lease and the specific nature of the market.

It can be difficult to manage all of these things and a prospective tenant should never try to do it all on their own if they are new to the property game – getting advice from solicitors, surveyors, agents and other professionals is essential. But even before you seek help, there are some key things you should keep in mind. Below is our guide to renting retail space.

It goes without saying that you need to think about what you can afford long before you start looking for a new – and maybe your first – shop. Have a clear red line that you won’t cross at the top end, but also have a lowest price and a mid-range, and compare what’s out there with your expectations.

It’s essential that you are aware that the base rent – i.e., the one advertised or first offered by a landlord - is by no means the bottom line cost. On top of rent there are a host of charges and fees that aren’t advertised: business rates, service charge, the cost of repairs and maintenance and energy bills, to name a few. Many first-time renters have had a nasty shock when they have added all these costs up: between them they can be as much as, or more than, the rent itself.

Bear in mind also that rent on retail premises is paid quarterly, on set calendar dates. It is due whether a landlord has sent a tenant an invoice or not – it is the legal obligation of the tenant to pay their rent. And one of these payment dates is, rather cruelly, Christmas day. The toughest time of the year for retailers is always post-Christmas: it is the time when the most businesses go into administration, under the weight of the December rent payment.

Retail tenants are often unaware of an option to occupy a commercial property without signing a lease: through a license. There are pros to this but also major downsides.

The benefit of taking a license is that it is a low-commitment option for renting a store on a short-term basis. As a result this is ideal for a brand wishing to dip its toe into a market, or open a pop-up store for a short time.

The downside is that it is far more precarious for a licensee compared to a company leasing a space. There isn’t what’s known as ‘security of tenure’ which guarantees a tenant certain rights, including ‘exclusive’ access to a property, i.e. the right not to allow a landlord to enter. A license can be revoked with a change of ownership, and there is no guarantee the property will be available when the license is terminated.

In retail property far more than for offices or warehousing, your surroundings are particularly important to trade. If rent is cheap it’s usually because of the surroundings and low footfall, and while it’s tempting to save money, remember that without the passing trade you won’t do much business.

It’s also important who’s near you, whether they are competitors or other types of business that might help or hinder trade. This consideration is part of the lease negotiations, and a landlord of a shopping centre will usually be willing to discuss a clause stipulating that they won’t place you directly next door to a competitor in the future, for example.

Remember that base rent isn’t set in stone. While there tends to be very little leeway in the residential renting sector, in retail property landlords expect to be beaten down from the original price during the negotiations, and will often offer incentives, such as rent-free periods, to get a tenant in.

When it comes to negotiations you need to be tough, and remember that you can negotiate almost any aspect of the lease if you know how – especially if you have a good adviser on your side.

Remember you can always walk away from a deal. Even when the initial broad strokes of a deal have been put in writing – in a document known as a heads of terms agreement – there is still room for negotiation and even to pull the plug if you aren’t happy.

That includes over fine details such as whether a lease entails rent reviews and how often these are, whether it permits you to sublease a property, the obligations on service charges and many more considerations.

This article was originally published on Realla on 11 June 2019.