In the retail industry, a lease agreement should include the essential elements, such as the premises, the costs supported by the tenant for using the space on lease and the term of the lease, which can be expressed in months or years, explains Dan Ionascu, head of the evaluation department at Cushman & Wakefield Activ Consulting Romania.
“The model of a lease agreement was brought by foreign developers, who are usually the landlords of the malls or shopping galleries where the economic activity is conducted. In this situation, the tenants, usually Romanian residents, don’t have enough experience in negotiations adapted to the complexity of a lease contract”, Dan Ionascu (photo) told Wall-Street.
The intricacy is made up of elements such as the term when the lease is completed or when the term can be extended. Usually, terms of retail leases are for five years, but generally this type of contract can be renegotiated after three years if it’s specified in the agreement.
“Nowadays, both the lessor and the lessee want the renegotiation of the rent and thus its lineup to the market conditions. Moreover, if the tenant and the landlord have not reached a concurrence, the tenant has the option of closing the business”, said the representative of Cushman, adding that this type of option is rarely specified in the agreement, as it is very risky for the landlord.
In this situation, the landlord has no longer the confidence of further incomes, which entails an additional risk. If the option of leaving the space at any time the tenant wishes or after a renegotiation term is specified in the lease agreement, it will directly influence the market price of the space in terms of investment.
“In this case, the rents will not provide the same certainty, therefore the price of the retail space will fall immediately after. Generally the sidewalk retail spa
