Lease Negotiations Final Stage

[kimbica]

Hi everyone,
I am in the final stages of negotiating a leased space for my coffee house and I wanted to see if anyone has any words of advice as to things I might have forgotten to get in writing. Any horror stories, words of wisdom, points to include in my LOI, etc. etc. are appreciated. They want me to sign by June 30 and have the lease begin July 1. I think I need to have the inspection and other due diligence dome before then. I have managed to get 2 months abatement and a credit towards improvements (modest), as well as (2) 5 -yr options after the initial lease of 5 years. Also a non-compete clause is added, and my starting rate is reasonable though it increases at a faster rate if I take the renewals (the rate of increase goes up at that time)

Anything I am missing?

Thanks! :-D
Kimbica

 

[cafemakers]

When you are satisfied with the financial arrangement, I suggest that you have your real estate attorney review the lease document and make his or her recommendations.

In addition to the business structure of the deal, there are a number of sections in your lease that may seem insignificant now, but have potentially serious future consequences; for example, blackout or rollover clauses, maintenance clauses, assignment and subletting restrictions, not to mention the details of your construction agreement, including punch lists, quality approvals and the structure and definition of completion dates.

Who is responsible for the build out? To what standards must the construction be completed? What happens if it takes more than 2 months? I certainly would not want to be responsible paying rent if construction is delayed for any reason.

The little extra money that you invest up-front in legal advice can potentially save you a number of headaches later on down the line. Additionally, the presence of unfavorable clauses could present an opportunity for you to reopen negotiations to obtain additional concessions.

Best of success,

Andrew

 

[ontrees]

Lease negotiations - lot so of details

Congratulations - it looks like you have been planning for awhile.

Here are some of the last minute gotchas that might come up -

Plumbing, these can all be expensive -
backflow prevention device
water main size
sewer main size
can the area you want your counters and kitchen be plumbed from underneath? basement, etc.?

ADA - disability requirements
bathroom sizes and equipment - especially with change of building use
will you have to build new bathrooms?

Fire egress -
Do the doors open the right way?
Are there enough exits?

Electrical power, especially in old buildings -
Is there enough power to the building?
To the box?

Heating and AC -
Is the system functional?
Who pays for repairs? It is probably you!
See how old the system is.

Sprinkler system
Will a sprinkler system be required for your use?

The big questions on all of these is who will pay to have it done right, and how long will it take?

Also, make sure there is something in the lease (or have all of this figured out ahead of time) showing that if any of these become a stumbling block that you can get out of the lease and get your deposit back.

Other things

Is it zoned properly?
Can it be insured properly?

I'm sure you have thought of most of these but these may help you a little.

Have fun! Putting a new shop together is a blast!

Eruc

 

[DCC_2006]

Here are some more things to think about...

- Fire damage, structural damage clauses

- Any charges the landlord can pass to you for "building" upkeep, parking lot snow removal, property management, etc..

I would have a lawyer who is experienced in commercial leases review the document. It may be expensive, but could be worth your money upfront to keep from having problems later on.

 

[beefybean]

If your lease starts July 1, and you have 2 months abatement, that is not atypical. Howver, be ready to go out the gate. If you don't have your layout, get crackin, because an architect will set you back 2 weeks to a month. LL will likely have to approve. You will also need contractor bids, and that take a couple of weeks. You'll want to review architect and will undoubtedly go back for revisions.

If you need MEP for permit (Mechanical, Electrical, Plumbing) certifications, they take a couple of weeks.

You will want an architect. You can do it without, and I tried it, but after reading the permit requirements, and then seeing the architects output on 5 sheets. I was way down the wrong path. I design and rebuild my own homes, but that's on the fly, and under the permit radar. Commercial construction is another game.

ADA, your egress door needs 1 foot to the side of the opening handle. My design got shifted by a foot down an entire corridor by the architect for this. An error of my ways. My office had to be chucked. I kept it small, but you can't turn a wheelchair around in it. Now my computer is on a cart that pulls out of a closet. Benefit? I gained back some space lost to the corridor.

If you are ready to go to permit, you will easily burn 2 months just getting the buildout done. Unless you have a significant amount of stuff already there, bathrooms, majority of plumbing and wiring.

On the lease, look at your exit clauses. Ask for subletting and assignment. Also state that the landlord cannot unreasonably withhold approval. The second part makes them provide a valid reason other than they just don't want to. They will still need to approve whoever would take over. Hopefully you won't need an exit clause, but if you do and don't have one, ouch.

Good luck, get crackin.

 

[Rockcreekcoffee]

Lease

I would definitely have a lawyer review it. It will be well worth the money in the long run (Believe me). I have had numerous situations with my landlord regarding our lease. (Long Story).


Make sure your lease covers at least the following:

Operational Hours (make sure they can be flexible - based on business needs)
Music (for Open Mic Nights - if you want them)
Non-competing business (Obviously)
Business that would hender your atmosphere (nail shops - due to smell).
Outdoor seating (providing you abide by city ordinances)

Your 2 (5 year) renewals - make sure they can't say "No" when you renew - only you could back out.

Also, if the land sells, usually the lease is just picked up by the next owner, but you want a clause in there "just in case".

Also, something to think about - build outs always take longer than you think. If you are not up & running in 2 months due to set-backs, do you have the resources for a couple of months rent?

You may want to pay 50% until you are up & completely running (after the first 2 months abatement)?

Rockcreekcoffee

 

[berniecmyk]

how about first right of refusal toi buy the place if it goes up for sale. nothing like building equity in he biz and RE.

 

[kimbica]

lease negotiation saga

Hi all, thanks for your insights! I wanted to give an update...I have received a copy of the lease and it is 47 pages of legalese. For anyone who has ever tried to wade through and understand this stuff, I can now sympathize. It is really restrictive and benefits the Landlord enormously in every respect. I did get a few things in there that I wanted, like a non-compete clause and 2 months rent abatement, but there are so many "what if" scenarios that would result in the LL getting the best end of things. I have been told that it is not unusual by my attorney, and she had no specific advice on changing it except to tell me that if there are things in it that I can't personally live with, to attempt to get them changed before signing anything. She did mention I should look into insurance to make sure I can get what I will need. Is there any question in this regard? Is it possible that I will have trouble obtaining adequate coverage? And should I shop around, or just go with my insurer who also does my homeowners' and auto coverage policies? I must admit I find it confusing, the order in which to do some of these things! I need to sign the lease to ensure I have the space, but it will start right away after I sign, and I can't apply with the city for permits without plans in hand, which will take time to draw up no matter who does them.

Any more insights/past experiences anyone can share? I think I will be shooting now for an August 1 start for the lease, and maybe open for business in October or so. I am hopeful that I won't have to pay more than a month or two or rent out of pocket with nothing coming in! It should help that I am not starting with an empty shell, but a past ice cream store.

-Kim