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Source: p 335, Investing For Canadians For Dummies, 3 Ed (2009) by Tony Martin, Eric Tyson

If the company leases its space, what does the lease contract say?
¿ A soon-to-expire lease at a low rate can ruin a business’s profit margins. ¿ With a retail business, the ability to maintain a good location is also vital. Check comparables — that is, what other similar locations lease for — to see whether the current lease rate is fair, and talk to the building owner to discover his plans for the building. Ask for and review (with the help of a legal adviser) the current owner’s lease contract.

I don't understand the sentence that I surrounded with ¿.

  1. How does a lease do so? A business must pay for its lease regularly?

  2. How does a low rate exacerbate the ruin? Should it not reduce the ruin?

1 Answers1

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  1. The lease is paid regularly. Monthly or annual are possible.
  2. The key part of the quoted phrase is "soon-to-expire".

Narratively from the POV of the landlord, the hip retailer ABC offered me a 10 year lease at $1000/month for an empty store front on an empty block. I agreed. ABC attracted a large youth market, so other stores filled in the rest of the block in the intervening decade, which I leased for 1200, 1500, 2000, and finally 4000 per month since the foot traffic and demographic is so strong.

It's now year 9. Next year, the lease will likely jump up to the comparable 4000 per square foot. Their margin in this location probably looks great today. But the purpose of the quote is to warn you to check the future.

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