Just outside the construction fence for the Major League Soccer stadium project in St. Paul is Big Top Liquors, a retailer that has been there for many years. In case any customer is unclear, a big sign on the corner of the building informed passersby: “Midway Businesses Open During Construction.”
A couple of beer snobs in my neighborhood, loyal Big Top customers, can’t understand how that Big Top location can still be open.
The answer, of course, is that Big Top has a lease.
It’s surprising how often that has to be explained, in business meetings and in the neighborhood. A small business can’t get pushed out in a redevelopment if it has a valid right to stay there.
The business might still leave, but that’s because the lease term ends or — and this could be much better — it gets paid a lot of money to move.
If smart people in business don’t really appreciate what kind of an asset a lease can be, maybe business owners could use a reminder, too. A lease means keeping control of your place of business. Doing that seems like a good idea.
You can understand why new business owners are a little bit reluctant to even sign a lease, what with the big financial obligation it represents. Commercial leases are not the short-term deals like those for an apartment but more like seven or 10 years. That can be painfully long if the enthusiasm for running the business seeps away well before the lease is scheduled to run out.
Leases have to be longer than a year, though, because unlike apartment renters the business owner needs a space that’s customized to work for the business. Usually landlords foot most of the bill for that. The landlord needs to get that money back, of course, taking the repayment a month at a time as part of a monthly rent check.
Landlords aren’t naive about the risk. To head off the possibility of the classic Friday-at-midnight move-out, they are likely to ask small companies for a personal guarantee of the business owner for all or some of the unpaid lease amount.
Whether there has to be some kind of credit support like that for the rent is just one of the things to be worked out with the prospective landlord. And if it hasn’t occurred to the business owners before, the first thing they need to realize when they get a lease draft to review is that just about everything in it is negotiable.
The right to terminate early, maybe just to manage risk, seems like a great thing to ask for, but landlords will not be eager to give that up. And tenants sure don’t want to give the landlord the right to terminate early.
There are rights to get out that do make sense for tenants, including to sublet the space or to sell the business and then turn over the lease to the new owner. Rather than spending too much time worrying about how to someday get out of an obligation, though, the business owner needs to give thought to making sure there’s the right to stay.
That’s particularly true for a retail business where the hope is that customers form a habit of stopping by.
A top priority should be getting an option to renew the lease at the end of the initial term. This is going to take a little back-and-forth with the prospective landlord, as both sides need to agree how to arrive at a fair rental rate at the end of the initial lease term.
A lot can change in those years, too. If the landlord comes asking for the right to terminate if there’s a redevelopment opportunity, the tenant can agree but only for some serious concessions, like much lower rent payments.
If the landlord instead has news that the area or the building is definitely going to be renovated or bulldozed, here’s one fine response to that: Great, just schedule the wrecking ball to start swinging the day after the current lease expires.
Ending lease early
At some price it will make sense to agree to move out early, of course, and that’s what happened within the footprint of the soccer stadium now called Allianz Field, well down the road in its construction for a scheduled 2019 opening. A Rainbow grocery store, for instance, once sat more or less in the middle of the site.
Rainbow has most recently been controlled by Supervalu, but a Supervalu spokesman wasn’t able to help answer a great question: Just how much money did it take before finally agreeing to shut down and leave?
The Big Top group of stores is still owned by the family of entrepreneur Sid Applebaum, who had also been instrumental in creating Rainbow. In the case of Big Top in St. Paul, the construction of the stadium could start literally across its parking lot while it stays in business, but it’s going to be closing at that location later this year. The store happens to sit about where a city street is going to be extended into the stadium site.
That Big Top store in the Midway looks a little tired today, but it’s hard to look your best next to a messy construction site, empty parcels and a vacant store next door that has obviously been closed for a long time. What’s undeniable, though, is that it’s a successful business.
That store has been named in the City Pages “Best of the Twin Cities” issue, in part because it’s one of those retailers that’s managed to serve everybody well. It’s popular with wine and craft beer customers shopping in the upscale end of the market as well as customers looking for something they can afford with next to no money.
The store’s owners are working on a new, nearby location for the Midway store, as its lease was going to expire early next year anyway. Relocating a licensed business is trickier than moving a regular store, of course. In a quick conversation with one of its owners, they asked for a bit more time for plans to progress before talking about them.
The one thing that came across, though, is good news for Big Top fans: Big Top’s owners have every intention of staying in the neighborhood.