Tenant Selection Rules with Retail Shop Leasing

When you have a vacancy to lease in a retail shop, don’t jump too quickly at the first tenant that comes along.  The fact of the matter is that some checking is required and decisions should only be made when you know everything possible about the tenant and their intentions in occupation.

Many a landlord has suffered the financial impact of a poorly selected tenant.  Whilst full tenant investigations will not always be 100%, you can gather a lot of information about the intended business and their activities, and thereby minimise mistakes in leasing the vacant space.


Shop Leasing Alternatives

A quality retail leasing agent can add considerable value to finding the tenant and then checking them out before the landlord has to make the final lease decision.  Here are some ideas to help with the process:

  1. CONTACT PERSON: Understand just who you are dealing with as a tenant contact and make sure they are the person in charge or the decision maker for the tenant business.
  2. BIG OR SMALL: With retail shops, it is not unusual to be negotiating with the smaller family businesses from the perspective of leasing and occupation.  On that basis find out what they have been doing elsewhere, where they have come from, and the experience that they have in their retail product or service.
  3. BUDGET: Have they got the finance to build the business or is this new shop to be part of a larger chain of established shops?
  4. PLAN OF BUSINESS: Ask to see their business plan.  There should be some substance to the plan with due regard for sales, resources, product, and customer base.  Also, understand how they intend to market their offerings to the local customers.
  5. EXISTING LOCATION: How will they fit into the existing tenant mix?  That question will be very relevant when it comes to leasing a vacant shop in a shopping centre.  Balance new tenants into the clusters of existing tenants.  Watch out for permitted uses that are existing now in lease documentation, and any exclusivity clauses that may require caution or avoidance.
  6. OPTION OR NOT?: Many landlords in retail properties prefer not to give options to renew the lease term.  This decision is made at the time of lease negotiation, and whilst it may not suit some tenants, the fact of the matter is that a lease option in a retail shopping centre will restrict changes to the tenant mix.
  7. RENTALS: Market rentals should be the basis for any lease negotiation, although lease incentives at the start of the lease are likely to impact rental cash flows at the very start of the lease.  Check out the types of incentive in the property market today and then select the one method that helps the client with investment returns over time.
  8. SECURITY AND BONDS: Guarantees are an important part of lease security and in the case of smaller tenants they are really important.  There are ways to protect the landlord’s rights in a lease but there are also ways to create guarantees and collect bonds as part of protecting the landlord’s financial situation in times of lease default.

From these facts, you have some things to work with and consider leasing your retail shop.  Check all the targets for the landlord before the lease negotiation starts.

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