Because leases are a long-term commitment, Selby says retailers must be sure they select a location that will be as right for them in the first year, as in the fifth year. This is important, he says, because it often takes one or two years for a retail business to become profitable when first starting out.
Understanding "the small things" about the location is also important, Mask says. For example, knowing your neighbours, knowing where your target market lives and knowing how the surrounding community is changing may save you future embarrassment. Mask recounts a plaza he visited in Quebec years ago. In the centre of the plaza was a funeral home. Flanking the home on either side was a topless bowling alley and an all-nude restaurant. Whoever arrived second in the plaza didn't take the details into account — a funeral home certainly won't attract happy bowlers, nor will a naked lunch enhance the funeral home's dignity.
Selby says he once found a large international brewer who accidentally located its offices in the same building as an addiction rehab facility.
"Know the history of the site and feel comfortable about it," he warns. "It's these little details that count."
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"Some of the big surprises, especially for smaller retailers, occur when they get their reconciliation of the common costs," says Mask. "The bill arrives from the landlord with a note that says, 'Sorry, we didn't charge you enough the first time.'"
Before you sign a lease, know your building inside and out. Investigate what kind of renovations have been done.
Ask about the age of the building, if there are heritage rights associated with your space and how much the landlord has invested in upgrades over the last several years. It's easy to look at an empty space and see what it will look like after you've painted the walls and filled it with your merchandise. Don't let your dreams interfere with reality.
4. Do you know your lease?
Selby and Mask say retailers must know their leases, especially because they are often purposefully written in a way that discourages a full reading. The best way to do this is to find an experienced lawyer who knows your business. "Your lease creates obligations for you and they are significant," says Selby. "You need to know what is in the lease that is offensive to how you want to carry on your business."
For example, what does "nuisance" really mean? What does "quiet enjoyment" mean? (Historically, it meant a right to operate peacefully without being evicted for no reason, not a right to silence.)
And what about your competitors? How are they defined in your lease? How does your landlord understand "market zone?" How is a department store defined and what does your landlord consider "a dollar store?" Not everybody wants a restaurant beside their store — does your lease permit your landlord to allow a fast food burger restaurant to open next door to you? Other issues, such as the operating clauses, may force a retailer to operate the store even if they can't afford to pay rent. Radius clauses, which prevent retailers from operating similar stores within a certain kilometre radius surrounding the store, can also become contentious after the lease is signed.
These are the kinds of questions that are hidden inside the legalese of many leasing contracts. Mask and Selby say spending money to have a lawyer read and explain your lease to you is always better than spending money on a lawyer to launch an injunction to correct the lease.
Finally, Mask says retailers must ensure tenant inducements — such as free rent for the first month or the right to terminate — are in the lease.
"Tenants go to great lengths to negotiate an offer to lease. They need to ask, 'Has everything I negotiated to offer made it in the lease?'" says Mask.
5. Do you have an exit strategy?
If an exit clause is not clearly stated, your lease could prohibit you from selling your business, subletting the space, or even changing your business. You need to know how restrictive the use clauses of your lease are so that you "know what happens if your business fails," says Selby.
The costs of breaking a lease can be substantial and you could be held personally liable.
2007, Retail Council of Canada — The Voice of Retail