It started with an adorable idea.
When Bill’s daughter Kathy stumbled across a pattern for a crochet mermaid tail, she knew it was the perfect baby shower gift for her dear friend. But when she posted the results on Facebook, she didn’t expect to “go viral” amongst her friends.
Soon Kathy had more orders than she knew what to do with. She was working with her hands and showcasing her creativity. Kathy was thrilled. Soon she needed a storefront to ramp up her side hustle into a viable business.
A kiosk at the mall would be perfect for Kathy. Bill agreed to act as a silent partner to give his daughter the leg up she needed to get started in business. He signed the lease without thinking twice. Kathy’s MerTales Inc was set up and ready to roll.
Closed for Business
But when competition got fierce, Kathy was forced to close her business. Sadly, she couldn’t find a replacement tenant to take her kiosk and as she had run out of money, she stopped paying rent.
Shortly thereafter, Bill got a bill from the landlord for all of the rent that would have come due for the balance of the lease term.
The Momentum Law Group Perspective
Negotiating a lease is a critical part of setting up your brick and mortar shop. They are one of the more complex legal documents that you can encounter. Although landlords may want you to think that the documents are standard, there is a lot of room for negotiations.
Many landlords will require a personal guaranty from the principal of the tenant. If the principal doesn’t have sufficiently strong financials, they may require additional security (such as an additional guarantor).
When Bill gave a personal guarantee, he opened himself up to liability in the event of Kathy’s default under the lease. At a minimum, Bill should have tried to limit the guarantee (by having it sunset or including a cap).
Retail space rental is a big expense for a small company.
It gets even more so if you don’t understand the hidden costs and/or restrictions that are “standard” in many leases. The landlord definitely has the advantage. If you need help negotiating retail lease, reach out to us for support. We’ve got your back.