How to lease a shop to tenants successfully

As the landlord of a shop, your success will depend greatly on the tenants you choose and the rental amounts you are able to negotiate.

But there is much more to successfully leasing a shop than tracking down a suitable retailer and agreeing on a favourable monthly, quarterly or annual rate.

You need to take a number of issues into consideration to ensure that everything runs smoothly during the shop lease and after it comes to an end.

Here are our top tips on what you need to think about when leasing a shop:

Choose your tenants carefully

The global recession hit the UK high street hard and many retailers went out of business as consumers reined in their spending.

Of course conditions have improved in recent months, but the economic downturn should serve as a reminder to choose your tenants wisely.

Not everyone could have predicted the demise of retail giants like Woolworths and MFI, but if you're leasing a shop, it's worth doing your homework.

Find out what position the company is in and how much demand there is for their products and services before you sign a deal.

A poorly performing retailer could cause you problems should they suffer financial difficulties and fall behind on their rental payments.

Negotiate rent agreements and other payments upfront

It's important that you are open and honest when it comes to rent, setting out the exact amounts you intend to charge for leasing your shop.

It is also important that you detail how and when these rental payments will be collected to avoid confusion or disagreements later on.

Rent details should be included in your shop lease agreement, alongside information on interest rates for late payment.

Similarly, you should be clear on any other payments you want or need your tenants to make, including deposits and VAT.

You may decide to include an escalation clause in your shop lease, which will allow you to increase the rent in line with inflation.

If you do go down this route, make sure your tenants are aware of your decision. They may ask to place a cap on the percentage of the rent increase.

Be clear on subletting and permitted use

A shop lease agreement will allow you to state the purpose that your retail premises can be used for and whether it can be sublet or reassigned.

Your tenant may be looking to open a small bookshop, but later down the line they may wish to add an internet café offering food and beverages, for example.

You will need to make clear at the outset whether or not this is permitted.

If substantial alterations would be needed to the shop, you may choose not to allow such changes to the use of the property.

However, the more flexible you are, the easier it may be to attract reputable tenants looking to grow their business fast, which will of course benefit you.

It is also worth thinking about whether to allow your tenant to sublet the premises or reassign the shop lease to another business.

There may be pros and cons for you as the shop owner and you should weigh these up before making a decision, seeking legal advice if necessary.

Inform tenants of their responsibilities

Your tenants will have a number of responsibilities with they sign a shop lease agreement. It is important that you set these out clearly to avoid confusion later.

For example, your tenants may be responsible for keeping the shop clean and tidy, including the exterior of the building, and carrying out any general repairs.

They may also be responsible for replacing broken or damaged windows, fixtures and fittings, and redecorating or replacing floor coverings at the end of the term of the shop lease.

Where non-structural and de-mountable shop fittings have been installed, re-instatement of the property to its original condition may be required.

Failure to carry out these obligations could result in a breach of the shop lease. To avoid disputes, make sure your tenants understand what is expected of them.

Secure the right insurance

It is crucial that you have the right level of commercial property insurance to protect your shop investment.

You will need to consider buildings insurance, and also contents insurance depending on the state in which you are leasing your shop.

Liability insurance should also be an important factor to cover you against legal action should a worker or customer be injured in the building.

It's important that you read the small print when selecting an insurance provider. For example, not all policies will provider cover for air conditioning units.

Is glass replacement covered? Will your policy cover accidental damage to your property or malicious damage only? Will it cover loss of rent?

These are all questions you need to ask when securing insurance to make sue that if anything goes wrong, you have the protection you need.

Get your shop lease agreement right

One of the most important aspects of letting out a shop is writing up a thorough, unambiguous shop lease agreement..

Lawpack provides a solicitor-approved shop lease agreement for short term leases, which can be easily downloaded online.

The shop lease template can be adapted simply to meet your needs and contains all the clauses you need, ensuring that you don't forget anything.

It can help you meet the requirements of tenancy law and can even help you word your shop lease to avoid uncertainty and misunderstandings.

Clauses featured in the shop lease agreement include the landlord and tenant's rights under the terms of the shop lease, rent and interest, repair and decoration, alterations, subletting, indemnity and insurance.ADNFCR-1645-ID-800554455-ADNFCR

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Published on: May 24, 2011

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