How to respond to 10 year commercial/retail lease in todays market - I offered 5 year
Im a small business owner with a successful brand going back 4 years. Ive been eyeing out this one location since early 2020, it’s located in a very prominent shopping district in one of the nations top 4 cities (not naming for privacy reasons). At the beginning of the pandemic they seemed open to come down a bit on rent but now they stand firm and want a 10 year lease term with option to extend another 5. I previously had proposed the rent amount they asked for but for 5 years. 
For me the location is ideal as it just doesn’t get any better than that, Im next door to prime retail and prime restaurants (brands such as Nobu, Patagonia etc). 
What are your thoughts on the 10 year? Obviously a little worrisome during these nutty times but it could also be an opportunity to lock this great location in. The rent amount is reasonable for me and Ive been in this same shopping district/neighborhood for the last 4 years and things have been great for the business financially and even survived this pandemic without too much headache. This location is what I have in my vision for my business going forward- just the 10 year freaks me out as Ive previously only had 2 year leases. What are my options if shit hits the fan? Ive been told to create a separate LLC for the lease to protect myself that way. Would love any input.
[{"id": "hj7oqsh", "text": "Counter with a five year initial term with two (2) five (5) year options.  This allows flexibility on your end.  However, if this is a popular strip center they're not seeking Tenants who may vacate after five years.  Also, they will likely require a personal guarantee based on your business description.\n\nAlso, how are you operating your business if it's not already under an LLC?", "replies": [{"id": "hj7rh5x", "text": "Thank you for your input.\nI am going in with a personal guarantee, but not sure how long these traditionally are ?\nMy business is an LLC obviously, but meant a separate and new LLC for this specific new location.", "replies": [{"id": "hj7yi1x", "text": "It will be stated in the lease. \n\nIE: you will personally guarantee for the duration of the initial term, plus all exercised options. \n\nAny landlord worth a damn will not agree to some shell corp. They will want you personally guaranteeing it.", "replies": [{"id": "hj92qpg", "text": "Its absolutely not normal to personally guarantee for the entire duration of the lease - we would be talking millions here. Even my realtor says its one or two year guarantee max.", "replies": [{"id": "hj9d06y", "text": "This is correct, for retail there may be an initial 36 month then  a 12 month rolling guaranty is common", "replies": [], "depth": 5}, {"id": "hjayilt", "text": "It\u2019s negotiable.  \n\nIf you\u2019re taking it as-is then there\u2019s a chance a sophisticated landlord would agree to 1-2 year personal guarantee. \n\nIf there is any LL\u2019s work or TI involved, please believe you\u2019re going to fully guarantee that lease + options the entire length of the term. \n\nI would suggest finding a new realtor who knows what they are talking about it.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hj865oa", "text": "Talk to a lawyer an LLC is ridiculously easy to pierce especially if your personally guaranteeing the lease.", "replies": [], "depth": 3}, {"id": "hj87z1a", "text": "You should also push for a Good Guy Guarantee whereby in the event you have to close the business you are only personally responsible for the lease until you return the keys.", "replies": [{"id": "hj92ujg", "text": "Never heard of such a thing and doubt this is relevant when rent is in 5 figures per month. They\u2019ll just lock you out if need be.", "replies": [{"id": "hj9un9z", "text": "It\u2019s also sometimes referred to as a limited personal guarantee. Just do a google search. I\u2019ve negotiated them into small and large leases for retail, office and industrial. Just another reason to use an attorney that specializes in commercial real estate. Also landlord can\u2019t just lock you out without going through eviction process.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hjmntwh", "text": "In a top 4 market this is a non-starter thing to ask for", "replies": [], "depth": 2}], "depth": 1}, {"id": "hj7ovyb", "text": "Even if you create a separate LLC, the landlord is likely to request a personal guarantee unless your business has a lot of assets in it. \n\nThe 10 year term is valuable to the landlord (especially if they plan on selling in the near future) and if the space is as good as you say, they might not budge on that. You may have better luck negotiating other terms, such as the rent. As a tenant, the options are also your friend. If they want a ten year lease, tell them you want two 5-year options to extend, instead of the one. It is not uncommon or unreasonable for the cumulative options to equal the length of the initial term.\n\nThere are way to many intricacies involved in commercial leases to expand upon here. An experienced real estate attorney will be well worth the money for you.", "replies": [{"id": "hj7r1uq", "text": "Thank you for this. If you have a good real estate attorney in mind please dm me, I tend to not hire the best attorneys honestly so would appreciate an honest and knowledgeable person.", "replies": [], "depth": 2}, {"id": "hj91cuf", "text": "This.  Especially the direction about an LLC being worthless to a LL: they'll want to see audited financials for the entity signing a lease.  New LLC?  Personal guarantees (guessing corporate backstops are not available), or massive deposits, or zero investments in regards to TI, are in your future. \n\nOnce you get that piece figured out (and really, why negotiate anything else without this done), I'd agree tot he 10 year lease, but ask for termination rights at years 5/7 with repayment of LL's unammortized costs (at interest TB negotiated...6%?).\n\nLastly 3% annual rent escalations are not uncommon at all.  For longer term leases you might be able to have them be flat and escalate inline with 3% but at 5 year intervals.\n\nGood luck, do us the favor of keeping the hive informed.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hj7to6x", "text": "You didn\u2019t indicate what the rent increases would be for the 10 year term. If they are minor (less than inflation) and the location works for your business model, the 10 year term could be a win/win for both of you. Landlord gets a long term lease and you have the piece of mind that your rent yantra going to increase dramatically after the 5 year term. Get whatever concessions you can and do it if it makes sense.", "replies": [{"id": "hj7u2bu", "text": "Oh sorry, 3% annually. \nI think Im just counting the next ~2 years as some sort of a wash, everything is in such life-support mode and so many of the neighboring tenants are gone, so its going to take another few years for these shopping districts to pulsate as pre pandemic times..", "replies": [{"id": "hj7x3ys", "text": "I think I\u2019d push back at 3% annual unless your business model allows for it. If there are significant vacancies in the area as you indicated, I\u2019d shop if LL won\u2019t budge.", "replies": [], "depth": 3}, {"id": "hj8cp5d", "text": "3% is on high end... but with where inflation may go, might not be as bad as it looked a few years ago.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hj87zul", "text": "A lot of tenants get spooked by long term but it goes faster than you think. Also, the beauty of CRE is you can do a lot to protect yourself. Make sure you have language in the lease that allows you to sublet or assign. Do the math on those annual bumps\u2026there\u2019s a lot of ways to protect your downside.", "replies": [], "depth": 1}, {"id": "hj8cmpy", "text": "Could ask for early termination option (yr 5 or 7 with notice and some penalty) and see where it goes", "replies": [{"id": "hj9m8va", "text": "This is what I was going to recommend as well. The LL is expecting a counter. Tell them you will do a 10 year but you want a termination option in year 5. If they say no, offer a termination in the event that sales are below x number. As others have stated, 3% annual is high but not irregular. I am hoping that you can go back at 1.5% and probably land at 2%.  Make sure you have the availability to sublet too in the future if things do go south.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hj8e3g3", "text": "The market is not a tenants market anymore.. it\u2019s a landlords market\u2026 and the deals that were once there are no longer there", "replies": [{"id": "hj8l6tl", "text": "I mean\u2026 really? I don\u2019t think we\u2019re quite there yet. Specially when 50% of shopping districts and retail stand empty", "replies": [{"id": "hjfybbf", "text": "In Arizona , I manage and lease 5 centers.  Our company has over 25 shopping centers in there portfolio.  We are about 80-90 percent full in every center.  But ok good luck", "replies": [{"id": "hjgay75", "text": "Yes you must indeed be in some alternate universe. I have in the last week been to major shopping districts in LA, San Diego, NYC, DC and Chicago - that is *not* reality in any of those cities. You might be in some small town in AZ where people literally have absolutely nowhere else as an alternative to set up shop.", "replies": [{"id": "hjguzpr", "text": "yea phoenix is pretty small....only 1.6 million people ....only the 5th largest city in america....coming from the guy who wants to not have any bumps in a 10 year lease.....no guranty, just wanting to use some little LLC with no money....like I said...GOOD LUCK DUMBSHIT", "replies": [{"id": "hjgzppv", "text": "I can tell from your grammar where you\u2019re at. Hugs to you! \u2665\ufe0f", "replies": [{"id": "hjh0dls", "text": "yep thats what we focus on!\n\nonly way to make money grammar!", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hjmodnm", "text": "You should sign the lease as a new single purpose LLC and agree to a 9 month or 12 month rolling guarantee, where your will pay 9 or 12 months of base rent only from the day you peacefully surrender the space in the event of a default.  Period.  Not one effing thing more.  If you Landlord does not like it, tell them to eat shit and that you have every other landlord willing to do that in this environment.  (Assuming you are only competing with local tenants, and minimal TI requested, this should work).  If you are competing with nationals, you won\u2019t win with this, and you won\u2019t win even if you provide a full term PG and you will just end up in big trouble.  Landlord are chasing guarantees super hard right now.  Never make that mistake.  And lawyer know absolutely nothing about the business implication of this particular clause, it\u2019s purely a business decision.  Anyone that pointed to legal counsel as a source of advice on this deal point needs to do more deals.\n\nSource:  I oversee a leasing and brokerage teams that signs over 150 new retail leases per year.", "replies": [{"id": "hjnco0d", "text": "Best and most useful comment on this thread. Thank you sir!", "replies": [], "depth": 2}], "depth": 1}]