Question

10.3   You want to open a retail business in a local mall. You have been offered two different rental arrangements under a five-year lease agreement. You can pay the landlord 10% of your sales revenue, or you can pay a fixed amount of $5,000 per month.                                                                             

a.     Describe the circumstances under which each of these arrangements would be your preferred choice, if you had to choose at the beginning of the lease.                                  

b.    What additional terms might you add to the lease contract to reduce your risk?          

Answer 1

SOLUTION :

a) Agreement 1 (10% of your sales revenue)

So this Agreement of paying 10% of my sales revenue will be suitable If your yearly turnover or sales revenue is less than $6,00,000 . So that you pay less than $5000 per month .

Agreement 2 ( $5000 per month)

This Agreement will be suitable If your yearly turnover or sales is more than $6,00,000. Because of it's more than $6,00,000 per year then you end up paying more than $5000 per month as your rental.

And as far as you sales revenue is exactly $6,00,000 per year if really doesn't matter which Agreement you choose. Because you will end up paying $5000 per month in both of the agreements.

So you have to estimate wheather your yearly turnover is more than or less than $6,00,000 to decide the agreement which will be suitable and profitable while choosing it at the beginning of the lease.

b) Additional terms in lease contract to reduce your risk :

1. RENT CLAUSE :

The first thing to check is the rent you will pay and the increment clause in the rental agreement. If no Hike is mentioned in the document and the owner decides to increase it a few months down the line, it will be easy to confront him.

2.FEES AND CHARGES FOR FACILITIES :

check if there is any penalty for delayed payment of rent mentioned in the agreement. It should clearly state the day by which the rent is expected and the charges you will Inka if you do not pay by the due date. You could also be expected to pay for various facilities in the mall such as gym, parking,club and various other facilities whether you avail this facilities or not.

3. OTHER TERMS AND CONTIDIONS :

Go through the various terms and conditions in the contract for rental agreement for any specific close the enemy impose, in addition to the rules. For instance he may insist on not allowing pets are keeping late heart, prohibiting music for working till night shift. this need to be clearly stated in the document and can help you decide whether the property suits requirements.

4. CHECK THE PROPERTY :

  while it goes without saying that you should visit the property that you are going to rent before moving in, most people do not pay much attention to detail. Make sure that the basic construction, including walls and flooring, paint work, electrical appliances, switch boards and wiring water connection and plumbing fixtures are in good condition. if you found something that is damaged or not in proper condition, immediately bring it to the owners notice and have it repaired before moving in.

5. NOTICE :

You can always mention in the clause that the landlord should give an prior notice before asking to vacate the property at the end of the lease agreement.

so these are the few terms you can add or check to reduce your risk in the agreement.

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