An attorney discusses retail store leases

Negotiating and signing a retail store lease in New York City is unlike any other city. The rewards are potentially great, but so are the risks. Here are a few of the most important issues I review with my clients when dealing with retail space. It is important to have an opportunity to thoroughly inspect the space before signing the lease. In New York City, a new tenant may commit to a space before the existing tenant even knows that his lease is not being renewed by the landlord. Thus, the opportunity to really look around before the lease is signed may be limited. It is more a matter of whether you are ready to grab a store in a good location before everyone else hears about it. When I negotiate retail leases, especially for out-of-towners, one of the biggest issues is the amount of security that it required. It used to be that one or two months security was needed. Now it can be traditional security of several months rent plus a substantial letter of credit. No matter how successful a company is, in many, if not in most instances, the landlord will ask for a personal guarantee from one or more of the principals. People who do not live in New York City may find this objectionable, if not downright insulting. Sometimes negotiations may result in a "good guy" guarantee, instead of a standard one. With a standard guarantee, if the lessee is in default, the guarantor can be fully liable for the full term of the lease. With a "good guy" guarantee, if the lessee is a "good guy" and gives up the space without a protracted legal battle, then the personal guarantee will end when the keys are turned over, along with the broom clean space. However, good guy clauses increasingly have requirements for notice and additional rent, which make them harder to comply with. They should be reviewed with legal counsel knowledgeable in this area. The amount of renovation to be done by the landlord as opposed to the tenant is important. Some landlords take the position that they will offer a few free months without rent for the tenant to take care of their renovation and they do not want to be involved in the process. Other landlords agree to make arrangements for a certain amount of work to be done by them and the rest to be done by the tenant. This can become complicated if the work which has to be done by the landlord must be completed before the work by the tenant can start. If there are any delays by the landlord, there may be problems when the rent commences. Retail leases can be complicated and there are many areas which need to be negotiated. Be sure to come to the table equipped with a good broker and a good attorney, who is knowledgeable in this area, and you will be off to a good start. C. Jaye Berger, Esq. is the principal of the Law Offices C. Jaye Berger, New York, N.Y.