Chosen Thought

Posts Tagged ‘Retail shops’

Despite stringent disclosure rules which aim to even things up between the supposedly rapacious seller and the innocent purchaser, it’s very easy for a buyer of a small family business to be caught by buying a dud.

If you’re stuck with a dud business as a result of being deliberately deceived you certainly can take them to court. But you don’t need me to tell you of the costs of litigation, the time it takes (years!), and the very real chance you may not succeed anyway.

Trap: The Demolition Clause

Before I left the shop I had asked the owners for a copy of the lease. They told me it still had 4 years to go and there was an option to renew for another 5. Good.

I read the lease and found it had a demolition clause in it. This allows the landlord to terminate the lease with minimal notice if they planned to demolish and redevelop the mall. And there is no compensation to the unfortunate lessee.

The trouble with a demolition clause is that it can be triggered at any time by the landlord and usually with very short notice. You might assume (or be told) that it would only be used to periodically give the center a makeover, which is not necessarily a bad thing. You have a lovely new shop and traffic through the center increases.

But a demolition clause does not in any way guarantee that you will get a new shop or that an office block (or whatever) will not be built on the site with no room for your shop.

So, in essence, you could lose everything. Where I have seen businesses with this clause in the lease, I usually say don’t buy it – just walk away.

Trap: The Refurbishment Clause

I then discovered a clause that said the shop had to be refitted and refurbished every 7 years to a minimum standard dictated by the landlord and at the lessee’s expense. The 7 years was up in two years time and I estimated it would cost about $100,000.

Retail shops do have to be refurbished from time to time, otherwise they may lose customers. But it should be the owners decision when to do this and how much to spend on it. This clause does not necessarily mean you should not buy. But it certainly gives you grounds for negotiating a lower price.