Are you renewing a retail lease next year?

Whether your lease is expiring or taking up your option for a further term you should by now have reviewed your Fitout Presentation and Merchandising and established what refurbishment works you would plan to drive sales growth.

An important area where Lessee’s fail to leverage their lease negotiations at a lease renewal / option is to effectively promote their fitout works.

Put simply as part of any lease negotiation and the research required to prepare for same is the capital cost to you in the fitout and or refurbishment the premises needs to be on the table.

Every day we see Lessee’s who think they have negotiated a good lease outcome only to find that once the fitout costs are factored into the equation – the deal starts to sour very quickly.

A couple of key points to apply here:

• First know your capital costs of fitout / works and the time period you need to amortise these to achieve the return or investment.
• Have clear understanding of the sales growth you seek to achieve from these improvements.

Once you know the amortisation period in years then add at least one more year before the lease ends i.e. landlord offers a 5 year lease, you need 6 years to amortise and if a 6 year term then 7 years are required (6 + 1) year lease.

Secondly make these capital costs well known to the landlord when negotiating the rental, when you relate these costs into the negotiations you give yourself every opportunity to improve the rental or achieve lease incentives such as rent free or fitout contributions.

And last of all ensure you introduce the sales projections you believe will be achieved from these improvements and apply industry occupancy cost ratios to leverage the rental negotiations.

Now if you do have a lease event occurring next year and you haven’t started the process contact the ARA to arrange a copy of our checklist to get you started.

Remember time can be your friend or your enemy, don’t let the landlord wind the clock down on you!

Need leasing advice or management services? The ARA has partnered with Lease1 to save retail tenants time, money and stress in their lease negotiations. To learn more about ARA Leasing Services email membership@retail.org.au.