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Negotiating your retail space: Part 2 of 2

Negotiating your retail space is one of the most important steps you will take on the path to owning a successful business.

In part one of this series, we looked at the physical aspects of your lease, like parking and utilities. In part two, we will talk about more abstract qualities including clauses, eminent domain, and guaranties.

Keep in mind that negotiating a commercial lease is never something that you should do on your own. Since Pennsylvania lease agreements can be very complicated, be sure to consult with someone who has experience with commercial retail rentals.

Personal guaranty

Asking for a personal guaranty or a "good guy" guaranty will provide you with some protection if you find yourself defaulting on the lease.

If your business is designated as a corporation or Limited Liability Company, a personal guaranty can be limited to one year's base rent plus any amount you own in back rent. Without the guaranty, you may be liable for the rent in arrears as well as the total amount due for the remainder of the lease agreement.

Condemnation and eminent domain

The U.S. Supreme Court has granted municipal governments the right to seize and repurpose private property if it is in the best interests of the public.

Most lease agreements prohibit you from suing the property owner for a share of the condemnation award. This is understandable since the claim of eminent domain was outside of the owner's control.

However, you should insist on compensation from the government that was responsible for the relocation. Moving expenses and loss of business are certainly damages you are entitled to recover from the government entity that carried out the seizure.

Flexible "use" clause

Most malls and shopping centers detail what and how the rental space can be used. Be sure that the description of your business is not too narrow in the lease. Use general terms to give your business some flexibility when it comes to the types of products it sells or services it offers.

The last thing you want to do is to get your landlord's permission every time you add a new product to your inventory.

Non-compete clause

Your lease agreement should include a clause to ensure that the landlord will not put a competitor in the same mall, or too close to your space, while you are in full compliance with the terms of your contract.

You may even be able to get the landlord to agree to not putting any competing businesses in other buildings under the same ownership.

Negotiating the terms of your lease can be a long and complicated process. Ensure that you are making the right decisions for your business by taking the steps needed to understand your tenant rights in Pennsylvania.

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