There are many benefits to buying a franchise including the chance to get help negotiating your lease.  And when it comes to negotiating, here are several fundamental elements that all make up a retail lease’s cost or value to a retail business. 

The headliners are rent, term of the lease, rent free period and fit out contributions – the most prevalent in the shopping centre industry.

1. Rent

The rent is the most fundamental recurring cost that has to be negotiated correctly. This can be done by researching the market rent or appointing a specialist negotiator that will have the most current rental information and add further value with the elements I will refer to below.

2. Rent free period

Rent free period is a key negotiating point that follows the rent. The rent free period is crucial to a business start-up as the cash saved helps negate some of the substantial investment in the business.

Negotiating a clear start date is paramount; a retailer may lose some of the benefit of the rent free period by not defining separately the fit out period. The fit out period is the period during the build of a shop fit and depending on the size and complexity of the operation, can take anywhere from two weeks to 10 weeks.

So if you negotiated 12 weeks rent free and you have spent four weeks building a shop and then have had delays from builders and contractors of another three weeks (a common occurrence) your rent free period can quickly be halved with your business losing the cash benefit. Negotiating a fit out period separate to the rent free period and building in delay contingencies is common in today’s market.

3. Fit out contribution

A fit out cash contribution towards a retailer’s shop fit is a regtular feature in any shopping centre lease. The amount of the contribution is always negotiable: the final amount will depend on the quality of the shopping centre and quality or demand for retailer. The higher the demand for your brand or business the more cash can be negotiated.

It is not uncommon for centres to pay cash equivalent to a year’s rent or more in a current flat market to secure the brand they require and to fill spaces.

4. Term of the lease

The term of the lease is inexorably linked to the value and security of your business. Negotiating a term that ensures you get a return on your investment is paramount. Strip locations enable you to negotiate options for further terms that can add tremendous value to a business’s good will. Shopping centres are fixated on shorter terms five to seven years on average; this can dilute good will and can be negotiated further in today’s market.

More elements to negotiate

Other key elements that can be negotiated to negate start-up costs or recurring costs are:

• Capital costs such as plumbing to the tenancy, air conditioning costs, fire services costs, general outgoings costs. All of these are negotiable and can be quite costly if not highlighted, negotiated and then clearly defined.
• Storage costs. It is not uncommon in shopping centres for tenants to pay anywhere from $400 to $1000 per sq m for storage space that is tucked away in a corridor near a loading bay. Negating these costs by negotiation prior to a lease is paramount.
• Further points of negotiation that can assist a business drive sales and curb costs are signage on pylons, access without cost to common areas for marketing and sales drives, parking costs for owners or staff and the cost of ‘make-good’.
• Negotiating the cost or details of what happens when the lease ends is something so far in the future most people don’t think about it. It is not uncommon for a tenancy being ‘made good’  for the stripping of equipment, taking out ceilings, levelling floors and walls, removing shop fronts etc. to cost many, many thousands of dollars.

It is a retailer’s market and it will continue to be a retailer’s market. Every element of a retail lease is negotiable.