No matter what business you are in, soon enough you will be faced with signing a lease agreement. I call it the ‘fleece agreement’ because, well, that’s what it really is.
So, if you don’t like getting fleeced, I highly recommend that you stay as far as possible from signing your first lease agreement. Work out of coffee shops, your mom’s house or from your family’s garage before you take up a lease.
Don’t do it, man! I know the lure of a corner glass office or a big factory with your name on is enticing, but that’s fool’s gold. Go as long as you can before stepping into the trap. Once you are in, you are in for the long run. Lease agreements typically range from two years to ten years, and sometimes even longer.
On a side note, if ever there was an industry ripe for disruption, it is this space. Coffee shops and business hubs started making a dent by offering flexible working environments, but I think we need an Uber or an Airbnb of retail and commercial rentals. I would cherish the ability to have flexible or pay-per-use commercial space. Or at the very least, bi-annual lease agreements, depending on the commercial space or industry requirement.
Related: Understanding the Terms of Agreement
I would pay a premium to have this flexibility. So there, never say I didn’t give you any business ideas. Here is a legitimate business problem, and I have given you a solution. Go make this business happen now. Go now. Don’t even bother reading the rest of this article. I would do it myself, but my plate is a tad full at the moment.
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Find an advantage
Okay, so to the person still reading this, I assume you have gotten to the point where you do have to sign a fleece agreement. Here is my advice as to how to get shafted as little as possible.
First, get a lawyer to review your contract. This is an expensive exercise, but trust me, it will save you much more in the long run. Once signed, landlords have made these bulletproof over the last number of years, so there will be no renegotiating or opting out. Basically, every time a tenant manages to worm out of a lease due to a loophole, the contracts going forward add a new sub-section clause that closes that particular gap.
It’s very rare to find a landlord willing to change a contract.
What you need your lawyer to do is add clauses that may protect your business. For example, if you’re opening a stationary shop in a mall, ask your lawyer to add an exclusivity clause making you the only stationary shop in that location.
Play it smart
Do not sign surety, if you can, but I doubt that you will win that one. And, if you can, I suggest you sign as short a lease as possible. This allows you to get out sooner, should your business not work.
The downside is that, should your business actually work, the landlord will have the power when renewing the lease. However, you can get your lawyer to put a ‘first right to renew’ clause at the next-year escalation rate.
Another thing to be aware of is that most lease agreements want at least three months’ deposit to sit in a trust. This will obliterate your cash flow and have an impact on your shop fillings. I suggest trying to get your lawyer to push for a long ‘beneficial occupation’, which gives you time to shop fit your space without paying rent.
Then fit your shop as quickly as possible and open a month earlier, giving you one full month’s worth of trade without paying rent.
- Avoid a lease agreement as long as you can.
- Don’t sign long-term leases.
- Don’t sign surety, if you can.
- Demand exclusivity in your lease.
- Watch out for that expensive three-month deposit.
- Negotiate for ‘beneficial occupation’ and use it smartly.