Legal Considerations
When it comes to a physical location/real estate, there are many legal considerations. Consider the tax requirements, water or environmental restrictions, and any nuisance laws. These can vary significantly and warrant your attention but here I will focus primarily on leasing and zoning.
Consider the client who wants to open a shop (or in my former client’s case – a bookstore) and they have decided that they would like to rent space in a strip mall. The zoning is already taken care of most likely (but inspections will still need to be done).
If your client wants to set up shop in a historical district, there will be more restrictions they will need to consider, such as rules regarding signage and renovations.
Leasing Property
Think about the lease agreement. These documents can be voluminous and contain language that you have never seen. Are any provisions negotiable? Some will be but there will likely be some that are not. Also, take stock of what kind of negotiating power you may have. Small, local businesses don’t have as much negotiating power as say Walmart or Sheetz. However, how much negotiating power you have can also depend on how many other places are currently available. Regardless, negotiating a lease takes considerable time so your client should be advised of such. If your client is in a hurry, then that will deflate your negotiating abilities too as you may need to concede provisions to move things along.
When reviewing a potential lease, my first step was to list all of the requirements that my client would be subject to during the duration of the lease. Once I had the list, I could talk to the client and see which things we needed to negotiate. Keep in mind that the lease that you are reviewing is very one-sided toward the landlord, so be on the lookout for things that you may want/need to negotiate. Some common terms are:
- Hours of Operation – If the lease is for retail space, it will likely have an operations covenant. In a mall setting, the landlord will want to have your client’s shop open when other shops in the mall are open. As such, it is common to have a section outlining what those hours are. But what if your client needs to close for some reason like repairs, renovations, remodeling, holidays, force majeure, weather, fire, pandemic, etc.? It’s important to address the ability to close (not meet the hours of operation covenant). If there is no language in the lease that addresses this, your client would be in default of the lease. As such, be sure you propose language to be included.
- Permitted Use – The lease will outline the permitted use of the premises. You will want to be sure that the scope isn’t written too narrowly. For instance, if my bookstore client’s lease said the permitted use was for a “children’s bookstore” but the entrepreneur wanted to expand and have books for all readers, then technically they could be in breach of the agreement. What if my client wants to sell toys and stuffed