Articles for Retailers - by Kizer & Bender

 Leasing vs. Buying

       by Rich Kizer & Georganne Bender

2018 is just around the corner and you may be contemplating a move, opening a new store or even buying the building where your store currently resides. These decisions require both thought and research: in the retail world there is still one golden rule about selection of space: LOCATION, LOCATION, LOCATION. It is critically important to choose the space that’s right for the business; space that offers the opportunity to build retail success now and in the future.

Buying a building can be an excellent investment strategy when compared to leasing space. The question here is financial. Is the money you put into buying the building over and above the investment you will need to open and operate the store? You need to be sure that this large investment will not put you in a difficult situation, now or in the future.  As building owner, you may also find yourself having to put large investments into the building which, under a lease, you would not be required to make.

If you are thinking about purchasing a building you need sound advice from qualified people. Meet with local experts and ask for their opinion on the building you are thinking of buying. Is it a good value? What future demographic shifts do the experts believe will take place that could affect this location? Center your questions on the future development strategies that you need to know to help make the right decision. In both buying and leasing a property these are your “must know” issues. Remember, buying is investing, leasing allows you flexibility.

The benefit of leasing is flexibility: You are only married to a location for a pre-determined period of time. Leasing also means that you will likely have more available funds to operate the store, and you will likely avoid expensive building improvement expenses.

There two types of leases: gross leases and net leases. A gross lease has one specific amount that you will pay in rent each month. There are no surprises because taxes, building insurance, and maintenance are wrapped up in the amount of rent you pay. A net lease consists of rent only, you can expect to be billed quarterly, semi-annually or yearly for taxes, insurance, and maintenance. Under either type of lease you will most certainly have the responsibility of common maintenance expenses for HVAC, plumbing, and usual upkeep requirements.

Rent will always be negotiated in terms of dollars per square foot for the space. Be sure to inquire about a number of available spaces for rent in your market – this is mandatory – to get an idea as to what you will be able to expect to pay for a specific location. Doing your homework prepares you to be able to strike the best deal for your store.

Leases have terms, say five years for example, with the important options of adding two or three more five year extensions at a predetermined rental rate, or based on an increase that is tied to the Consumer Price Index (CPI). It is critical to ensure that you have more than just a single term three to five year lease. ALWAYS have your attorney review the lease and advise you in all transactions concerning the lease. You are leasing this location as a home for your store, moving can be costly and very challenging in reshaping customer shopping habits. Someone who shopped with you at one location may not follow you to another location.

You also need to take into consideration necessary leasehold improvements. These can include painting, lighting, flooring, bathroom, plumbing, slat board for the walls, etc. Who does the leasehold improvements, and who will pay for them, is negotiable during lease discussions. Think about what you want to do, and spend time visiting other stores for ideas before opening lease negotiations.

During lease negotiations you must also address the right to sublease the space to another tenant. You might not be thinking about that now, but it may be important to you in the future. During the sublease period, you are still required to pay the rent to the landlord; you must also collect rent from your tenant.

You can also negotiate Right of Assignment. Assignment, like subleasing, gives you the right to assign the lease to another tenant. What makes Right of Assignment different from subleasing is that it releases you from any further obligations to the landlord. Again, this needs to be negotiated and written into the lease.

So, whether you decide to lease or buy requires due diligence on you or part in order to make the decision that is right for you and your business.

NOTE: We (Kizer & Bender) are not attorneys. This article is not meant to offer legal advice. Before signing a lease, or buying a building, always secure an attorney to receive proper legal advice on everything discussed in this article. You are entering into legal agreements that result in serious financial responsibilities for you and your business

Rich Kizer & Georganne Bender are professional speakers, retail strategists, authors and consultants whose client list reads like a “Who’s Who” in business. Companies internationally depend upon them for timely advice on consumers and the changing retail market place. KIZER & BENDER’s observations are widely featured in national newspapers, national and international industry and consumer publications, and on radio and television programs across the U.S. You can learn more at