Despite the intense online competition, the flower retailing industry continues to blossom with florists opening up new stores. The Flower Retailing industry sells only half of all cut flowers retailed in Australia. The other half are sold by other retailers, such as supermarkets, exclusive online stores, greengrocers and convenience stores.
If you are considering to open up a florist store, or expand your chain of stores, you will need to ensure that you are aware of all the legal considerations that are associated with entering into a commercial or retail lease. A commercial lease is a significant part of any retail business, as it will have a substantial impact on the finances and long-term strategy of your business. Also, while a good commercial lease will cause you little trouble over its duration, a poorly worded or vague commercial lease can cause your business no end of trouble. Therefore, your florist business will not doubt benefit from you having knowledge of the legal considerations associated with the term of the lease and rent review.
Commercial Leases for Florist Businesses
On average, rent costs account for approximately 7.7% of revenue in Australia. The duration of the term of the commercial lease will be dictated by the landlord or property owner. It is likely that the shortest length of the term of your lease will be five years as this is the general practice in today’s market. Therefore, before you begin negotiations with an owner of a commercial property, you should have a length of time firmly set in your mind so as to give yourself a stronger negotiating position.
Also, it is important that the commercial lease for your florist business is clear on the commencement date and termination date. Some commercial leases deem a certain date to be the beginning of the lease, while others use a specific event, such as the occupation of the property, to signify its commencement. Unfortunately, it is not uncommon for business owners to be caught our by ambiguity in this section of their commercial lease, and thereby begin payment of the lease before they have any income from sales.
Furthermore, you should ensure that the termination date of the lease is equally clear and unambiguous. If your lease has any option to renew within it, then these dates should be clear and negotiated by both parties.
Rent Review in Flower Retailing
Florists are often located in busy areas, such as shopping complexes and walking strips, where there is significant foot traffic. Exposure to potential customers is a critical success factor, and retailers often compete for prime locations. As such, you should keep in mind when your rent review takes place to secure your good position. If your commercial lease includes a clause that relates to the periodic review of rent for your florist business you should not be alarmed. Rent review is standard practice for commercial leases and is not necessarily as stressful as it sounds. Therefore, before you sign your commercial lease, you should ensure that the frequency of the rent review is no less than every two years unless there is an objective review, such as the Consumer Price Index.
Also, your commercial lease could include a ‘ratchet clause’ that is a clause that states that the rent cannot be decreased by the original amount. Unless you actually feel that the rent should decrease for the area shortly, then this is standard business practice.
Florists require a high level of passing traffic. It may also be beneficial to be located near hospitals, where purchasing of get-well gifts will be concentrated. If you are looking to start your own florist business, you will need to ensure that you are aware of all the legal considerations that are associated with entering into a commercial lease. Our leasing lawyers can review your lease, as well as assist you with any business or commercial lease need.