For a Tenant, Here are 5 Advantages of a Pre-Lease

According to CoStar, the retail vacancy rate in the Dallas-Fort Worth area was 4.7 percent at the end of 2017’s second quarter, up from 4.6% from the first quarter of 2017. What does this mean if you are in the market to open a retail business? When you find a location that is well situated for you, consider signing a pre-lease.

What is a Pre-Lease?

As the name suggests, a pre-lease is an agreement signed by a landlord and tenant before construction begins or well before completion. Of course this usually means that you cannot consider a brick-and-mortar building or speak to existing tenants, because there may not be any open for business yet. However, with the assistance of a retail broker exercising due diligence to evaluate the commercial potential of a strip shopping center, a pre-lease can offer several business advantages.

What are the Advantages of a Pre-Lease?

#1. You choose your spot in the center. Are you a dry cleaner? Then perhaps you want a space on the end that will allow you to have a drive-thru. Do you rely on foot traffic? In that case, you may choose the space next to the center’s incoming supermarket.

#2. You may be able to negotiate a better deal. As spaces fill up in a center, rates are likely to increase. A landlord is more inclined to offer you an effective rate when you sign a pre-lease.

#3. You get designated parking spaces in front of your business. Customers appreciate not having to search a crowded parking lot. With a pre-lease, you may be able to include several spots for your customers or clients only.

#4. You can have exclusive business rights. For example, if you have a donut shop, then signing a pre-lease can mean you are the only business able to sell donuts. Even other purveyors of food such as a sandwich shop or convenience store will not be allowed to sell donuts.

#5. You may receive more flexibility in the design and construction of your space, as well as expansion rights. Precisely because there’s no brick-and-mortar building yet, you may be able to negotiate certain liberties that will not be possible once a structure is up and standing.

As the saying goes: the early bird catches the worm. Find out if signing a pre-lease will work to your advantage.

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.