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Look Before You Lease

Posted: April 4, 2008

This cautionary tale could save other pet store owners from facing hidden fees.
By Susie Atherton

Pet Product News ArchivesIf you are thinking about opening a pet store or relocating your current one, consider my story before you take the plunge and sign a lease.

Canine Creek opened in spring 2004 in California, and within two years had expanded twice in the same location. By last summer, we’d outgrown our space again, so we began searching for a larger location.

As luck would have it, an upscale commercial complex was under construction in the town’s central shopping district and was scheduled to open that December. It was a beautiful building in the perfect location, and I was eager to take it.

In order to sign a new lease, however, we needed to get out of the present one, which still had two and a half years remaining. Our landlord agreed to an early lease termination if we acquired a suitable replacement business, so we began advertising and, a few months later, secured a reputable tenant. We were free to go. We signed a lease for the new location, paid our deposits and secured a contractor for the February relocation.

Leasing a pet store space
In December, days before we were to start tenant improvements, I began hearing rumors about unpaid mitigation fees, which are assessed by the city for new commercial construction to offset the cost of increased demand on water and sewer. I learned that, due to current policy, the developer of our new complex had been given the option to defer his fees (i.e., pass them on to tenants), rather than pay them. And Canine Creek would not be issued an occupancy permit if the fees weren’t paid.

“How much are they?” I asked. The answer was shocking. Nearly $17,000!

Passing the Buck
Since the developer had not disclosed these fees when we signed our lease months earlier, I dug in my heels and refused to pay. The developer said, “Sorry, not my problem.” The city said, “The developer should have told you.” They were pointing fingers at each other, and we were stuck in the middle.

When it became clear we’d reached a stalemate, I saw no choice but to back out of the new lease, although we had already re-rented our current location. My husband and I were embroiled in an expensive legal battle, and our retail business was 60 days from being homeless.

I soon discovered that a number of businesses were in the same boat, with some being assessed fees as high as $57,000. Why would our city allow the developer off the hook in paying for the infrastructure of his commercial complex, placing a huge financial burden on the business owners? The developer stood to make millions, while retailers were being faced with the possibility of drowning in fees and losing their shops. This policy was clearly detrimental to small business, and I was determined to see it changed.

Like many people, I’m not fond of public speaking, but I forced myself to attend the next city council meeting, where I addressed the board. With a $17,000 invoice in hand, I explained how the developer’s nondisclosure and the city’s allowing fees to be deferred was hurting my business and several others. Another business owner, who was only weeks from opening her store, took the podium and told an identical story.

Power of the Press
As newspaper reporters normally attend city council meetings, the mitigation fee issue quickly became front-page news. Business owners and residents were angry, and the buzz could be heard all over town. Our city council was under public pressure to fix the problem in a timely manner, as a number of businesses were hanging in limbo.

Thankfully, that’s what they did. Within 30 days, a unanimous council vote changed the policy on how commercial fees were assessed in the future. To rectify the situation for business owners affected by the old policy, the developer of the complex was required to pay the more than $100,000 in fees he had attempted to pass on to tenants.

Could this have been prevented? Perhaps. Was it a lease issue? Not really. In this case, our city did not have procedures in place to ensure fees were disclosed to prospective tenants. They left disclosure up to the developers, and this particular one discovered the loophole. If I had known to ask the city about liens, fees or assessments that applied to the property prior to signing a lease, I could have saved thousands of dollars and months of frustration. It was an expensive lesson learned that nearly cost us our business.

But Canine Creek is on the road to recovery. We secured another location and will be in a newly remodeled 2,900-square-foot building by the time this issue is published. <HOME>

Susie Atherton is owner of Canine Creek Dog Wash & Boutique and past Retailer of the Year.

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