Five Minute Friday: Negotiating Your Lease: The 3 Essentials Every Retailer Must Know

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Business can be a lonely game, but it doesn't have to be. Welcome to Boutique Chat, where we explore community over competition and how to scale your company with the balance and the happiness that we all seek. We'll hear from product based businesses of all types, retailers, E commerce and wholesale brands, along with industry experts shaping the future of our industry. I'm your host, Ashley Alderson from the Boutique Hub and I can't wait to chat. Hey guys, welcome to five Minute Friday. Today I am so excited we are going to start adding in a few new types of five Minute Fridays because in the spirit of community over competition, I firmly believe it's not always what you know, but it's who you know. And at the Boutique Hub, we happen to be surrounded by some really incredible industry experts that really hone in on their very specific area of expertise and I wanted to start to introduce some of their voices to you on Five Minute Friday. So every few weeks I have asked a few of these experts to join me by just simply submitting their own five Minute Friday on quick, actionable tips that you guys can put into place right away. So this week I am so excited. I'm kicking it off with Petal Retail Advisors and what they're going to talk about today is three things that you must know when it comes to really negotiating and understanding your lease. They're going to dig into all, all things brick and mortar in quick, actionable steps so you know exactly how to get the most out of your lease. All right, let's jump into it five Minute Friday with my friends, Petal Retail Advisors.

Hi, I am Abby and this is Sheila. We are with Petal Retail Advisors. We are a retail real estate brokerage and advisory firm for independent and startup retailers specifically. So we love helping hubbies with their real estate, their brick and mortar real estate, whatever it is, if it's a new location or renegotiating in an existing location, maybe you're relocating. Anything that has to do with your space or your lease we can help with. And so today we are going to talk about the top three things to negotiate when you negotiate your lease. And before we even jump into the list, the most important thing, if you take nothing else away from this podcast, you absolutely must negotiate your lease. You are not expected to sign. The first thing you see, you've got to negotiate.

The only way we can really think to explain this in a fun way is if you think about the bachelorette, right? So imagine you're the bachelorette and it's like the very beginning of the show. And the first contestant, the first guy gets out of the limo and you just say, like, okay, great, done. I'll take them. Well, it's not much of a show, and everyone around you is like, hey, like, you're supposed to meet the other people. You're supposed to get to know them before making a choice. That's kind of what it's like. So if you don't negotiate your lease, you're just signing what the landlord hands you, which is like the first guy out of the limo, right? It's the very beginning of a process that you are supposed to engage with. The landlord expects you to engage. And everybody's always happier when they've had a stay in, like, the final outcome, right? You need that time to kind of get to know what it is that you're signing and feel like it really is a good match for you. So, that being said, the first, the number one thing to start, and this is in no particular order of importance, but the first tip, the first thing you're going to negotiate is, of course, the rent. Now, there's a tendency to say, like, what is the cheapest? Like, to look for the cheapest rent and to say, like, well, what's the guy next to me paying? Because I don't want to be taken advantage of. But the truth is, the best way to get a great rent deal is to find out what is affordable for you. It doesn't matter what the person next to you does. It doesn't matter what the person down the street does. What matters and what a good deal looks like for you is relative to your business. So the thing to keep in mind is occupancy costs. Occupancy cost is a critical metric, and what it is is your cost to occupy the space, which is your total rent over. You're divided by your revenues. So how much of your total revenues is going directly to rent. And for a healthy retail business, we really don't want that number much higher than 10%. We like it to be around 10, maybe a little under. The nuances depend on your business. But 10% is a good way to look at it. So if you think that you're going to do $20,000 a month in rent, $2,000 is the max that you should be spending on rent. So rent is number one.

Rent is number one. Number two is concessions. Concessions are things that your landlord gives to you or money that your landlord gives to you as an inducement to you to rent their space and not somebody else's. Now, there are a bunch of different kinds of concessions. But the most common ones are rent abatement or free rent. And that's free rent. After you open for business, after you're already doing sales, there's TI or landlords work, which are different ways for the landlord to help you with your build out, whether they're contributing financially or doing some of the construction themselves. And they may also pay your broker's commission. Those are the most common lease concessions to negotiate. Sometimes you might have just one of them, sometimes it might be a combination of the three. Every deal is different. And remember when you're asking for these things, why a landlord would do it. You're paying rent, right? So they're going to give you concessions up front, but they're going to make that money back on the back end. They're not just giving you things out of the goodness of their heart. So you don't need to feel like you're out of line or aggressive or pushy. Asking for these concessions, they're usually baked into the deal and the landlord, whether they come out of the gate and offer them to you or not, they're expecting that they're going to have to make some concessions. You may just have to ask. So number two is concessions and number.

Three for me is the sleeper because no one really thinks about it at first, but it is so incredibly important. And that is the rent commencement date. So your lease is going to have a whole bunch of dates in it and your LOI is going to have a lot upfront. The rent commencement date is one of the first things that gets negotiated. And that is what it sounds like. The day you start paying for rent, do you start like the first time you had to send in the check. So you should not under any circumstances be paying rent before you're open for business. Okay, so let that's a fact that's set to the side. While you're building out your space, you should not be paying rent. So when you open for business, that is when you may be, that's sort of most likely when you're going to start being required to pay rent. So the time it's going to take you from the moment you sign that lease to the moment you can open for business, that can vary, right? That can depend on how much has to happen in your space before you can open for business. Whether that's construction or whether that's the arrival of inventory, whether that's the birth of your baby, like whatever it is, you need to have a hand in determining when that rent commencement date is because you and the landlord, they don't want you. You don't want to be in like a bad spot financially. So everybody wants to make sure that the date you're agreeing on to start paying rent works for both of you. So the third thing is the rent commencement date.

So we hope you feel armed and equipped to go out and negotiate the rent. Make sure you get a great deal. If you are opening a brick and mortar as you can imagine, we have just scratched the surface of what's possible and how to negotiate. So if you want more help in figuring out how to put together your deal, the first place you can go is to YouTube. We have hours and hours of free videos of a lot more explanation of these topics and many others that are important. You can reach out to us directly and we'd be happy to help you. But just know that you've got this. This might be your very first brick and mortar. But smart landlords know that independent businesses, and independent boutiques specifically are what gives a project a downtown a Main street character, uniqueness and vibrancy. The shoppers who come to their project want to see people from the community running businesses. And so what that means is you have power. You can ask for things. Don't just assume because it's your first or you've never done this before that you're automatically destined to get a bad deal. We don't want to see any hubbies out there getting bad real estate deals. There's no reason for it. We want to see you set yourself up for success with an awesome deal on your lease. And we know you can get it. So go get them hubbies.

Thanks for listening guys. I hope you took away all kinds of nuggets and new ideas from this week's episode. Don't forget to subscribe and leave a rating and review. We love to hear your feedback and give you a chance to be featured on the show each and every week. For more information on our spirit of community over competition and to access guest downloads and bonuses and all the resources we talked about on the show, head on over to theboutiquehub.com and join the community. We'll see you next week.