Accepting An Offer to Vacate Commercial Space

Discussion in 'Growing and Managing a Business' started by ihsactivewear, Nov 12, 2010.

  1. ihsactivewear

    ihsactivewear
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    I own a small business in a busy tourist town. I have the most desirable location on the main shopping drag if you consider location, size and the price per sq ft I lease for. It provides the best combination of size/rent price on the street.

    Recently a national chain approached me wanting me to move out of the space so they could put a flagship store for a new franchise they are starting. I have a current 3-year lease and an 35-year option for right of first refusal of the lease - meaning that my landlord cannot lease the space out from under me unless he gives me the opportunity to match another lease offer. So basically, the chain wants to open this store up in the next 6 months and I have over two years on my current lease remaining.

    They hinted that they will pay me a cash settlement to vacate the property early and move down the street to what would be a less desirable location. Does anyone know of a formula out there for how much would be fair for me to ask for? I'm not desperate to move and don't want to sacrifice long-term profit for short-term cash. Do you ask for a years revenue, several years of my avg profit or does it just depend on individual circumstances?
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum ihsactivewear, thanks for joining. I don't believe that there is any specific formula that would calculate a value for what they are asking. If your business is profitable and running well in its current location I would be extremely careful not to underestimate the value of that. A business location that is convenient for customers to get to and that has passing trade is extremely valuable and can be one of the most significant factors in determining whether or not a business is successful. Moving to a business location that is very close in distance, but does not attract the same passing trade or is more difficult for customers to access, might not provide you with enough business to be profitable.

    It would be advisable to spend sometime thinking about how your business would succeed or indeed survive in the new proposed location. You might even take time to physically observing the passing trade at the proposed location and compare it to the passing trade at your current location.

    Assuming that you feel your business could run well in the new location then your objective would be to get as high a price as possible for sacrificing the lease and agreeing to move location. You will want to consider all costs of the move to you, in terms of physical costs such as renovation of the new premises, any loss of trade in the new location, moving costs, staff costs, the costs of any lost business resulting from time closed, etc. Then try to estimate how much value the department store would place on the new location and how much they would be prepared to pay in order to get it. Basically you will be negotiating to get the best price possible. Having a chat with some of your local estate agents might help to give you an insight that could help your negotiating position.

    Good luck with it and please do post back to let us know your thoughts and how it is working out for you.
     
  3. William King

    William King
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    My advice would be nearly the same as Fergal gave you. Give your preference to safe the place and try to utilize all the options of keeping this place as it is an ideal location for your business and I think they can't vacant the place unless you leave it because you have the legal rights
     
  4. ihsactivewear

    ihsactivewear
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    Fergal -

    Thanks for the advice. You have confirmed my thoughts. My business at the current location actually burned to the ground in February 2008 and I had to re-locate to a different location for 14 months while the building was rebuilt. I witnessed first-hand what the less desirable location did to my off-the-street revenue, so I'm am very conscious of the fact that I am not sacrificing this location unless there is a substantial amount of cash offered. I think my price will be too high and they will likely seek out another location on the street. Unfortunately in our current economy there are several options out there - just none as desirable as mine.
     
  5. Fergal

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    Thanks for your reply ihsactivewear, good luck with the negotiations and please do post back to let us know how everything works out.
     

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