The landlord is one character many small business owners would prefer to exclude from their business equation. Michael Best details how best to deal with them
Important issues must be considered before you sign a lease and get into bed with a landlord. It’s always possible that you could enter into a lease agreement with little caution and be fine for the duration of the tenancy. A much wiser tack, however, is to protect yourself and your small business as well as you can against all eventualities that can befall a tenant. The first risk is the possibility of good judgement being overshadowed by the rush you experience when you find the ‘right’ premises. Finally! you think. Where do I sign? But not so fast. Caution needs to be the watchword.
Scout the location and ask, ask, ask
Not far from where I lived in Calgary is a popular street of boutiques, restaurants, art galleries, spas and coffees shops. Most of these small businesses are in rented street-level space in office buildings. A number have been operating for many years, but one building has always had a noticeably higher tenant turnover. It’s a fashionable building with good curb appeal and six street-level rental spaces seemingly ideal for the high-end retailers it has attracted over the years. “What accounts for the high turnover of small businesses in this building then?” you might be wondering. The answer lies in the popular estate agents’ expression: “Location, location, location!” The building is situated at the end of the street, where there is less foot traffic. There is no adjacent parking and all the parking lots within sight are reserved for other businesses. Anyone wanting to visit one of the businesses in this building would have to park some distance away.
One can’t help but wonder why new tenants would think they can succeed in a location in which many other similar businesses before them have failed. The assumption has to be that they don’t do their homework on the location. It’s not always easy to find and question previous tenants, but the search is surely worth the trouble if it saves a business owner from committing to a bad location. A brief discussion with neighbouring businesses’ owners on the street would also likely alert them to the building’s long-standing parking disadvantage and high tenant turnover. Puzzling as it may seem, potential tenants tend not to conduct inquiries of this type.
While scouting the prospective location, take note of the neighbours too because they can have a significant effect on your business. And don’t just be satisfied to take what you see at face value: establish whether or not the landlord has documented restrictions on the types of tenant businesses they will allow and whether that safeguard can be included in your lease. You wouldn’t want to be left with no recourse after signing a multi-year lease only to watch the children’s clothing store next door move out and an adult entertainment store move in. Assurances included in the lease agreement with a no- penalty termination clause could be a business saver. A less obvious issue that must be considered is crime and vandalism. It’s wise to inquire about the extent of both in any area in which you’re thinking of locating. If the area is targeted more than others, you should know about this and factor it into your location choice.
Once you have your eye on a particular rental space, visit it frequently at various times on different days of the week, even if you just do drive-bys. You need to know about daily and weekly occurrences, favourable and unfavourable, that might affect your business.
Location and proximity
Ample customer or employee parking and proximity to public transport are important to some businesses. But even if those are not important to your print or embroidery business, there may be other location considerations such as proximity to parcel delivery services, suppliers or customers. These considerations should be taken into account during the location selection process.
Check inside and out
If you’re working with a good agent, they should alert you to any potential structural concerns with a building you might be considering. However, don’t rely on the agent. Check the important aspects of the building yourself. Clues that the landlord may be less than diligent about the property’s upkeep might be the need for a fresh coat of paint, potholes in the parking lot and an untidy or unsanitary bin collection area. A poorly maintained building with a shabby appearance could be detrimental to your business. Inside the building, check for signs of water damage. Water-stained ceilings or walls could indicate leaking pipes or a leaking roof. If your garment decoration business needs a greater than usual supply of power, ensure that the building is wired to provide it. If lighting is important, check to see if it’s adequate. It’s often easier to persuade a landlord to address these things when they are trying to get your signature on a lease than when you’ve already signed.
Due diligence on the landlord
Part of the decision-making process should include finding out as much as you can about the landlord. ‘Landlord’ in this context means the person or company that will interact with you over your tenancy. If the building is owned and managed by an individual, then find out what you can about that person’s management style. If the landlord is a bigger organisation and you’ll be dealing with one or more of its employees, such as a property manager, find out what you can about these individuals. Advanced knowledge is usually advantageous.
The lease and the lawyer
Any small business owner should have a good lawyer review a lease before signing it, particularly if it’s the first lease they have ever signed. Landlords are inclined to present leases as ‘standard’ and the signing process as a ‘formality’ to be handled as expeditiously as possible. Don’t fall for it. Leases are binding legal documents. They require careful scrutiny. A good lawyer will spot unusual or prejudicial clauses as well as omissions. The cost of having a lease reviewed is minimal when measured against the potential cost of the consequences of not taking legal advice.
Buildings do change hands
There is an ever-present possibility that the building in which you are a tenant will change ownership. You can’t do much about it other than be aware it can happen and ensure you negotiate a lease immune to an adverse ownership change. When your landlord changes from an accommodating, responsive and caring individual to a large company of bureaucrats and confrontational nit-pickers, you want to be able to pat yourself on the back for having a watertight, lawyer-reviewed lease tucked away in your safe. If nothing else, it will provide your small business with security of tenancy under unalterable terms until the renewal date.
A game of poker
When the time comes to negotiate or renew a lease, not all landlords will approach it with a take-it-or-leave-it attitude. Much depends upon circumstances such as prevailing vacancy rates in the area and the general economic outlook, among a host of other influencing factors. I was about to sit down to negotiate the renewal of our main office lease with the property manager of the building. I’d heard that the landlord was aiming for an increase I considered to be higher than market value, and certainly higher than I anticipated accepting.
A lease negotiation can be like a game of poker, with each party trying to guess at the other’s cards before showing its own. I had minimised the guessing by advanced knowledge of the proposed rent increase. I also knew we were regarded as a desirable tenant and guessed that the landlord wouldn’t want to add to the existing unleased bays in the complex. About ten minutes before he was due to arrive for the meeting, I had an idea that, in retrospect and in all modesty, was not only fun but a stroke of genius. I found a manila folder and filled it with an assortment of colourful brochures, price lists and sundry promotional material we had lying about the office.
I then wrote ‘PREMISES SEARCH’ on the cover of the folder in black marker pen and placed it on the far end of the meeting room table, where it was out of reach but close enough for the title to be read. By the end of the meeting during which there were many furtive glances at the manila folder, we had agreed on a very modest rent increase in line with what I regarded as fair. In addition, my request for new carpeting at no charge was agreed to. Amusing, stroke of genius or manipulative, call it what you will – the manila folder of assorted screen printing pamphlets did its job.
Be a good tenant
Pay the rent on time, keep the premises clean and meet all your obligations under the terms of the lease. Landlords are more inclined to cooperate with trouble-free tenants – and there will be times when you need cooperation.
This is an edited excerpt from Characters Who Can Make Or Break Your Small Business by Michael Best. Through 39 characters, Michael covers all aspects most small business owners can expect to encounter in the life of a business from inception to disposition. It can be read linearly or used a reference book to be consulted when confronted with a particular issue. Real life examples and anecdotes presented conversationally means it’s not your average, boring business book. It is available from: