4 Tips for Negotiating the Best Lease for Your Pet Business

I LOVE WHEN my wife, Nancy Guinn, gets bored. That means she’s ready to open another Dog Krazy store. We currently have seven locations in Virginia, six being brick-and-mortar and one warehouse dedicated to our online store. Over the years, we have negotiated many leases. Whether this is your first commercial space or you are relocating or expanding, here are four tips for negotiating a lease that favors you and not the landlord.

1. Don’t be afraid to go long.

I never go into a lease thinking, “What if this location doesn’t work out?” So I am always looking for the longest-term available. This is advantageous to you and the landlord, as they don’t want to look for a new tenant every year. I have a general rule: I never sign a lease for anything less than seven to 10 years. By simply offering to sign a long-term lease, I have more leverage when it comes to further negotiations.

2. Negotiate everything, but rank these as most important.

Base Rent

Simply the price per square foot. Understand that what they are asking for is not their bottom line. I have gotten rates down 30 to 40 percent from the original asking price.

Reducing rates is all about negotiating concessions and knowing when to walk away. We negotiated a space that started off at $27 per square foot and finalized it at $17 per square foot. Part of the concessions was tenant allowance. We opted to forgo any allowance for construction to reduce the base rent. Also, helping the leasing agent or the landlord understand that a pet store improves the image and appeal of a shopping center, bringing in more high-end clientele, helps with the negotiations.

Annual Increase

The amount your base rent will increase year over year. The annual increase is typically 3 percent, but it could be higher or lower depending on the market. I live by a simple rule of “If you don’t ask, then you don’t know if the landlord will go lower.” If they are asking 3 percent, then ask for 2 percent.

Common Area Maintenance Fees

Also known as CAMs, these are those pesky additional costs like real estate taxes, insurance, shopping center maintenance and administrative fees. They usually are represented as an additional price per square foot. This is a floating number, which means it changes. The only way to know if it is accurate is by asking for proof. That’s why you negotiate the right to audit CAMs. They will have to give you copies of the real estate taxes, insurance bills and all supporting documents. Take the total and divide it by your square footage, and that’s what you should be paying.

HVAC

These systems are typically up to the tenant to repair and sometimes replace. Depending on how big your location is, replacement can range from $7,000 to $20,000 or even higher. In the 14 years we have been in business, we have had two HVAC units that needed to be replaced. The first one cost $7,000, and the second one was $17,000. Luckily, we didn’t have to pay for either one.

Especially if it is an older system, I stand firm on this negotiation point. You just never know how well it was maintained by previous tenants. I also have my own HVAC company come in and do an inspection. They have no loyalty to the owner and give an honest assessment of the system.

Most landlords push back on this part of the negotiation. You’ll have to find common ground. In most of our leases, we have a few requirements:

1. We have to have a maintenance contract. That means an HVAC company is coming out at least two times a year and servicing the equipment.
2. We pay for minor repairs. Typically, we have it set at a $500 threshold per occurrence. This is simply so we are not nickel and diming our landlord.
3. If the system does need to be replaced, they must replace it in a timely manner and pay for any substitute devices being used until it is replaced. Renting portable A/C systems can be awfully expensive.

Signage

This goes beyond putting a sign above your door. You want access to all property signage, including any pylon signs, and the ability to put up lawn signs and flags. Landlords typically have verbiage that no signage is allowed without prior approval. That means that if you don’t have it in your lease to allow for lawn signage, they can outright deny it. So ask for approval before signing the lease. A landlord doesn’t want a business to fail. It costs them money to have to constantly release a space.

3. Hire a leasing agent

After seven locations, I do not hire leasing agents. However, I used them when I was looking for my second and third. When you are small and just starting out, most leasing agents won’t return your calls about specific properties. They think you’re just dreaming and not serious. This is when having your own leasing agent is helpful. They have the clout to get other agents on the phone and start negotiations. A few things to understand about having a leasing agent:

1. They work for you, but they are making a percentage on what the total value of the lease is. That means the lower the lease rate, the less they make.
2. They can have a lot of deals in progress, and it can delay negotiations because you might not be their priority. Best practice would be to do your own homework and figure out what your bottom line is for a space you are interested in. If they can’t get that number for you, then move on.
3. Not all agents are the same. There are agents who specialize in commercial spaces. When hiring an agent, ask what their expertise is. An agent who focuses on residential leases does not have the knowledge of someone with a commercial focus. You can also get commercial agents to do some leg work for you, such as getting traffic counts, and other similar businesses in the area that you are looking at.

4. Hire a good lawyer

I absolutely love our lawyer. A good lawyer takes a lease that is favorable to the landlord and makes it favorable to you. However, you must communicate what you want as a minimum in the lease. If you want the landlord to pay for the HVAC, then communicate that to your lawyer. They also are on the lookout for proper verbiage and help eliminate any ambiguity. Your lawyer is on your side and helps you find that line in the sand. Negotiating a new lease is exciting. However, you must know when to walk away from a bad deal, and your lawyer helps you with that. A good lawyer doesn’t cost you money, they save it for you.

Happy negotiating. If you have any questions, please feel free to reach out to me at cguinn@dogkrazy.com.