Starting a Business

The Basics of Real Estate Leases

That retail lease may seem simple, but there could be more to it than meets the eye.
Magazine Contributor
2 min read

This story appears in the October 2006 issue of . Subscribe »

Question: I just started a retail business and am looking to lease retail space in a local shopping mall. Are there any "gotchas" I should be looking out for in a lease agreement?

Answer: Shopping center leases can be very tricky because in most states there's no standard form that all landlords use. Here's what you should be on the alert for.

Sale of premises: This clause allows the landlord to boot you out if he or she sells the shopping center and the new landlord doesn't like your business. Try to have this clause removed, or add language requiring the landlord to suspend rent payments and pay for all your relocation expenses.

Relocation: A relocation clause allows the landlord to relocate your business to another location in the shopping center (usually in retail Siberia) at any time. Ask to have this clause removed, or make sure it applies only if your space is affected by major construction to the shopping center. Also make sure the landlord pays all relocation costs and agrees to post signs throughout the mall to direct customers to your new location.

Utilities/HVAC: Make sure your retail space has its own meter for all utilities (so you're not paying the water bill for the delicatessen next door), and that there's a separate HVAC compressor for your space. That way, if the air conditioning breaks down during a heat wave, you can get it fixed without waiting weeks for your landlord to get around to it. Be sure to have a contractor inspect the HVAC before you sign the lease.

Security deposit: Make sure any upfront security deposit you pay is kept in a segregated, interest-bearing account, and that the landlord promises to return the deposit when the lease terminates (you'd be amazed at how many leases leave out that last part).

Noncompete: Question any clause that prohibits you from opening another store within a specified radius of the shopping center. If the landlord insists on a noncompete agreement, make him or her agree not to lease any space in the shopping center to a business that competes with yours.

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