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Don’t Sign That Lease (Yet)

Don’t Sign That Lease! (Yet)

Signing a lease is one of the most important economic actions that you will take as the owner of a yoga or wellness studio.

The key point of this post is that you must read, understand and negotiate your lease. There is no such thing as a “standard” lease and you should never accept the form that is provided by your landlord. It will always be written in the landlord’s favor.

All terms of a lease are negotiable but your leverage depends on whether your local rental market is hot or cold. If plenty of commercial space is available, you may win some concessions. If your rental market is tight, you may have less leverage. Always remember that a bad lease can harm your business.

Here are 20 key points to consider in negotiating any lease:

1. Personal Guarantee. Are you obligated to personally guarantee the lease or is it an obligation of your legal entity? Naturally, you want to sign the lease in the name of your entity. If you sign it in your personal name, you are personally responsible for all liabilities arising under the lease. These include rental payments and indemnity.

2. Landlord Build-outs. Many disputes result from the landlord’s obligation to build out or modify the leased space. Make sure that your lease has a clear description of the landlord’s obligations. What is the landlord obligated to do, what are you obligated to do, how much will it cost, who will pay the cost and who is responsible for cost over-runs? You need to have a firm completion date in writing. What if the landlord does not complete the build-out on time and your opening is delayed? Will the landlord pay a penalty  or abate rent? I have seen several studios forced into delaying their openings because the landlord delayed completing the construction.

3. Zoning. Do the local zoning laws permit a yoga studio business in the space that you are leasing? Make sure that  you know this for a fact; do not rely upon statements by landlords and leasing agents. Studio owners have signed leases and then found out that their space was not zoned for a yoga studio. Check with the local municipality for zoning, license and inspection requirements before you sign the lease.

4. Lease term. What is the term of the lease, and can you extend the lease? If you elect to extend the term, what is the rental rate? Is it the same or does it go up for the extended term? Do not be afraid to negotiate your rental rate and your lease term! A short-term lease is usually to your benefit. Shorter leases give you more flexibility if the needs of your business change — for example, you want more space or decide that a different location would be better. However, a  long-term lease ensures that you’ll have an affordable space for a longer period of time. Landlords are often inclined to make more concessions on long term leases than short term leases.

5. Security deposits. Make sure that the lease is clear on how you get  your security deposit back. Under what circumstances can the landlord withhold your security deposit? Is it clear and is it fair? Some leases require that the tenant give written notice of the expiration of the lease as a condition to the landlord’s obligation to return the security deposit. Put the notice date on your calendar.

6. Use of the Space. Make sure that the scope of use in the lease is broad enough to allow you to expand your business. Can you open a boutique, a tea shop, or provide massage therapy? After the lease is signed, it may be hard to convince the landlord to let you change your business. Your business may expand and you do not want your lease to block your plans.

7. Parking. What about parking? How many parking spaces do you get and do you have to pay for additional parking? Is there enough parking if your business grows?

8. Subleasing. You may want to sublease a portion of your space or you may want to leave the space before the end of the lease. Make sure that you have the right to sublease. Negotiate language that the landlord cannot deny your right to sublease unless it has a commercially valid reason. Your right to sublease should not be at the landlord’s discretion. You will probably remain liable on the lease if your sub-lessee does not pay the rent, but at least you will have this important right.

9. Signage. Do you have the right to put up signs on the building? What are the landlord’s restrictions on your signage?

10. Rules and Regulations. Many leases require tenants to comply with the landlord’s rules and regulations but these are often not provided with the lease. Make sure that you review a copy of the rules and regulations before you sign the lease.

11. Heating and Cooling. The lease should be clear on the landlord’s obligation to heat and cool the space. Do you have control of the temperature of your space or is it centrally controlled?

12. Location. Before you sign the lease make sure that the location is appropriate for a yoga studio. How does natural light look throughout the course of the day? How does the energy of the space feel? Who are the tenants? Are they noisy and will they disturb your classes? Are there complimentary businesses in the area which may be willing to refer students to your studio?

13. Rental Rates. Negotiate the rental rate. Make sure that you know what similar spaces are renting for in the area and use your knowledge to negotiate a fair rental rate. Be careful about automatic increases in rent if you want to extend the term of the lease. Some leases include an annual increase to your rent. If the landlord insists on this provision, try to get a cap on the amount of each year’s increase, and try to exclude a rent increase for the first year.

14. Hidden Expenses and Utilities. Landlords often include extra expenses such as maintenance fees, upkeep for shared facilities (common area maintenance) and so on. What about utilities? These charges are usually the responsibility of the tenant but how are they measured? Are they individually metered or apportioned by the square footage? Be sure that you understand all of these “hidden fees” before you sign the lease.

15. Repairs and Upkeep. Even though the landlord owns the building, you may be responsible for repairs and upkeep. Commercial leases vary in their approach to this – some provide that the tenant is responsible for upkeep and repairs while others state that the landlord is responsible. Understand and negotiate your lease.

16. Default. You may lose your lease if you default.  This may occur even if the default is unintentional. What is a default? If you default, will you be locked out immediately? Do you have an opportunity to cure the default? What is your cure period?

17. Gross and Net Leases. Be very clear as to whether the landlord will pay utilities, repairs, taxes and insurance. With a “gross lease,” your rent includes these costs. However, with a ” net lease” you pay for these items separately.

18. Don’t Negotiate Your Lease In “Panic Mode.”  You may be in a rush to sign a lease to launch your new studio or maybe your business has grown so quickly that you want to lease a new space. These pressures can affect your ability to negotiate the best deal for your business. It is important to remain open, flexible and creative about your lease and your space. Don’t let yourself become desperate; landlords are expert at sensing this and it will put you at a disadvantage.

19. Don’t Be Attached to One Property. You are putting yourself at a huge disadvantage if you decide that a particular space will “make or break” your business. Always negotiate knowing that, if you can’t get a fair deal, your business will thrive elsewhere. I have seen situations where the owners fell in love with a space and were willing to make large concessions. However, when the deal fell through, the owners found an alternate space which was much better than the original!

20. Get Representation. It is wise to find an expert to help you negotiate your lease. This could be a commercial real estate broker who knows your location or a lawyer. If you use a broker, make sure that the broker is not also representing the landlord. This is a conflict of interest and you will lose.