It is no secret that high rents are driving some independent retailers out of business.  Real estate commitments are frequently the cause of the dire financial straits facing department and chain stores as well.  Rents in both small towns and big cities have gone up as real estate values increase, with the biggest competitor we face — Amazon — paying very little rent on its mammoth warehouses.

As you probably know, retail space rent is referred to in terms of the annual cost per square foot.  A 2,000 square foot store renting for $25 a square foot will cost the business a base rent of $50,000 per year, with additional operating expenses often added. Of course that’s not as bad as having a shop on Upper 5th Avenue in New York, where the same space would cost $7 million ($3,500 per square foot).   You’d have to sell a lot of merchandise to be able to afford that.  

A business in fragile economic shape will sometimes find most of its income going to the landlord.  I have spoken with more than one embittered retailer who is only keeping his or her shop open until the lease runs out.  It is easy to view landlords as being anti-business.  But they often have a sizable investment in the building or shopping center, and in addition to the interest on a mortgage they need funds to pay for major maintenance, city assessments and real estate taxes.

If you find that you are going to be late with your rent, it is important to contact your landlord right away.  See if you can work out a payment plan, or arrange to borrow money to fulfill you commitment. If not, the terms of your lease may allow the landlord to add late fees or even change the locks so that you can’t access your property.

What if there is a special reason that you are in financial straits? If there is for example roadwork in your area, or if your mall has lost its anchor store, these are legitimate reasons to ask for a rent reduction. It may be temporary, but at least it may help keep your store in business.  Unless your landlord has potential tenants knocking on the door, it’s usually better to keep an existing tenant than to go looking for a new one.

If you don’t feel that you can afford to continue paying your rent, you may be able to sublet. Another option might be to divide up your space so that another business is responsible for part of the cost.  

When it is time to negotiate a new lease, do some homework to see if you are paying the same as other businesses for comparable space.  And as experienced retailer Amy Moore points out, start the lease negotiation far in advance of the deadline. That will give both you and the landlord good time to go back and forth in deciding on a fair price per square foot — as well as equitable terms — for you both.

Happy Retailing,

Carol “Orange” Schroeder

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