Commercial Retail Lease

[Donald La]

A friend of mine is looking to rent out a retail space for his restaurant. Here is an outline of the basic terms:

-1200 SF

-Lease Term: 10 years

-Monthly Rent: $12,000

-High Traffic in Beverly Hills, CA

How would you guys negotiate security deposit, rent abatement, TI, and option terms. We already have LOI drafted up, but I'm just curious to see what all of you guys think.

[Karl Dowden]

The security deposit depends on how financially secure the tenant and/or guarantor are. I usually see 2-3 months unless there isn't a strong guarantor (then it could go up to 6 months). This also depends on your friend's willingness to stomach risk (if the tenant stops paying and your friend has to spend money evicting the tenant and reletting the space, the security deposit may not be enough to recoup all the expenses and vacancy costs).

Rent abatement and TI are terms that depend on your market (and how incentivized your friend is to lease the space quickly). If you have access to term sheets for similar space in the area, you can gauge the average concessions landlords in the area give. If not, you could always state "To be discussed" and let prospective tenants propose the terms to gauge the market (however the obvious risk is that your friend gives way too generous concessions for the market based on a few initial offers by prospective tenants).

Disclaimer: This is from my experience in the New York City metropolitan area and the market in your area could be significantly different. Also not intended to be legal advice.