Expenses You Need to Know before Leasing Retail Space
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There are a lot of factors to consider when leasing retail space. You need to think about the expenses involved, as well as the potential income you could generate from the property. Here's a breakdown of some of the key costs and considerations you'll face when leasing retail space.
1. Rent You can expect to pay anywhere between $10 and $50 per square foot in rent, depending on the location of your store. A commercial real estate company in Delhi NCR suggests that new businesses should consider paying no more than 15% of their monthly revenues for rent, but many factors can influence what you'll pay in rent each month. Things like the size of the property, its age and how much it is being offered for lease can all affect what you'll have to pay each month when leasing retail space.
2. Security deposits while landlords typically require a security deposit that equals two months' worth of rent, some may ask for up to three times that amount. According to Investopedia, this security deposit helps cover potential damages caused by you, the tenant. If you neglect to pay rent or violate any other terms of your lease agreement, the landlord could use the security deposit for those costs. You should be ready to provide a signed copy of your agreement and a check covering the first month's rent when signing a lease for retail space.
3. Maintenance fees Retail properties may come with several different maintenance fees that need to be paid during your tenancy. These might include things like utilities, property taxes or insurance premiums – all of which are considered "pass-through" expenses because they don't affect how much money you collect from shoppers each month during business hours. In fact, as Investopedia notes, tenant improvements can also be pass-through expenses since they benefit the tenant only.
4. Tenant improvements depending on the scope of your store, you may have to pay certain fees that are considered "tenant improvements." For example, if you're opening a restaurant that requires plumbing, electrical wiring or fire sprinklers, these costs can be passed back to the landlord for approval and paid by you as part of your tenancy agreement.
5. Business licenses you’ll need to make sure all local business licensing requirements are fulfilled before moving into retail space. This can include registering with the state comptroller's office, obtaining any necessary permits from the municipality where your store is located and making sure sales tax accounts are up-to-date. If there's any chance you might neglect these important administrative tasks, it might be a good idea to hire a CPA who can take care of them on your behalf. You may also want to consult with an insurance agent about potential liability protection coverage.
6. Insurance Business owners need to protect themselves from risk – whether it's something as serious as a major lawsuit or as common as an unexpected loss due to fire damage at the property. In some cases, you'll be responsible for paying these types of expenses out of pocket if no insurance is in place. It's imperative that business owners not only understand what type of liability coverage they need but also where their assets are most vulnerable and how those risks could impact their bottom line. For example, if you're opening a restaurant, you might acquire commercial auto insurance to cover any liability you might incur while driving to or from the store. If you already have a commercial auto policy, it might not cover retail trips, so check with your agent about whether purchasing additional coverage is necessary.
7. Utilities Electricity, water and sewer service are typically billed separately for retail tenants. You can expect to pay between $25 and $150 per month for utilities, depending on the size of your store space and how much energy (and water) you use each month.
8. Advertising your landlord will benefit from having your business in their shopping center or mall by boosting foot traffic among other shops. As such, they may require you to run advertisements in the property's directory or even make regular appearances at events held within their common areas. Don't be surprised if your landlord provides you with free ad space in addition to charging you for any local print or online ads that are seen by shoppers.
9. Security Retail spaces are prime targets for burglars looking to steal merchandise, cash and customer information. Depending on the crime rate of the area where your store is located, now might be a good time to purchase some security cameras for around-the-clock surveillance of the property. If there's an alarm system in place at the center or mall, make sure it will work properly with all firewalls.
10. Other fees some landlords require tenants to pay security deposits (also known as last month's rent) before their first day of business. You may also want to check into whether the property charges for parking spaces, which you can usually negotiate with your landlord.