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Build Out 101 single

April 19th, 2013 by

The last two blogs have detailed the many factors that contribute to the value of a retail space as reflected in the rent. But, as you consider my input on each of these elements, from location to convenience to price, to determine whether a space is right for your business, it is hard not to notice that the physical condition of the store itself has yet to be discussed.

Shouldn’t you be concerned with what your future store looks like? Yes and no. Is the square footage and general shape/layout important? Yes. Should you be turned off because you despise the coral-colored carpet? No, not any more than such an easily modified thing would keep you from purchasing a home. The majority of shopping center landlords assume that each new tenant will need modifications made to a space, which we refer to as the build out. If you’re not yet a seasoned and confident negotiator of this issue, it is imperative to use a savvy commercial real estate agent to get you the best deal possible for your needs and to hire a lawyer, experienced in retail property matters, to make sure that the agreement is properly documented in the lease.

While it is safe to assume that the build out details will outline the improvements to be made—whether it’s an all-out overhaul or simply new paint and fixtures—the lease should also clearly indicate who will be responsible for the costs incurred, as well as hiring contractors and overall project management. I have seen build out costs handled myriad ways, and it is not safe to assume there is a standard practice. Just because your friend’s build out was covered by the landlord does not mean yours will be too. And do not assume that if the landlord agrees to pay for the build-out, it is not actually being amortized in your rent. Again, that is where a good agent and lawyer can make sure you are getting the full story and a fair deal. One additional caveat is to beware of the landlord trying to roll additional costs into the build out to bring the building up to code. Even if the landlord is not willing to pay for the build out, capital improvements made to the building required for code-compliance should be the responsibility of the building owner who is in it for the long haul, not tenants whose interest is over within a term of years.

Also, if you are going to operate a specialty business that might necessitate unusual fixtures or built-in elements (perhaps elaborate dog washing stations for a pet groomer, kitchen equipment for a restaurant, etc.), the contract could stipulate that you can remove those items at the end of the term. In addition, you may need to finance them and your lender will not go for any lease that requires you to leave them in the space at the end of the term, or makes the lender’s interest in them secondary to the landlord’s. Make sure you are aware of those requirements, too.

By the time you get to the build out, you should be having some fun (finding furnishings, fixtures and finishes), so rely on your professional resources, lean on your agent, your lawyer, even your architect, engineer and interior designer. Let your team help you define and state clearly in the lease your build out needs, wants and expectations.

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