In the last article on selecting a site to locate your personal training business we discussed several questions you should consider when evaluating potential sites for your studio. Once you have identified a suitable location, the next order of business is to negotiate the term, or duration, of the lease and the rent you will pay, which is usually figured per square foot. Leases typically include an option to renew at the end of the term, at either a specified rent or "prevailing market conditions." Some retail landlords stipulate a so-called percentage lease, or overage, whereby tenants pay a minimum rent plus a share of gross sales.
Landlords are more likely to provide increased concessions for longer term leases. Most will be five to ten years with an infinite number of renewal options, all negotiable.
Be sure to measure the space before you sign a lease. Spaces are often reconfigured, and your landlord could be giving you an old floor plan that’s not accurate.
Mind the Extras
Expenses. Landlords tend to pass on expenses to their tenants, one way or another. In a triple net, or NNN, lease, the landlord bills separately for taxes, insurance, and operating expenses or common area maintenance, or CAM. Expenses are prorated among tenants according to their share of the total space. CAM is usually broadly defined; besides upkeep for shared facilities such as the parking lot, lobby, stairwells, and restrooms, it can also include virtually any operating expense.
Be aware of which expenses your landlord proposes to bill, particularly as part of CAM. Ensure the right to see for yourself the expense budget, as well as which costs are actually incurred. Utilities are also borne by the tenants. Utility costs are usually apportioned by square footage.
A gross lease, by contrast, includes everything, at least in theory. This term, too, means different things to different people. For instance, to some brokers, a full-service lease is synonymous with a gross lease; others say full service includes utilities but gross does not. And gross leases will usually pass on annual increases in expenses. Either way, make certain that your expenses won't increase within the first 12 months of your occupancy.
Maintenance and repair. Most landlords attempt to hold tenants responsible for maintenance and repairs of anything other than the roof, exterior walls, and parking lots. Some require renters to replace failing equipment, including the heating, ventilation, and air conditioning systems, a potentially enormous outlay. If the building is approaching 10 years old, or the HVAC systems have seen inordinate use (in an especially hot climate, for example), get the HVAC systems inspected, along with the plumbing and electrical equipment. If you find problems, make it a point of negotiation.
Plan an Escape Clause and Other Provisions
Leases almost always favor the landlord. But you can build in clauses that level the playing field. Be strategic in setting priorities. Try to make changes that are more likely to be accepted – making a few important changes is more important than 20 small changes.
Co-tenancy. Many shopping centers rely on big anchor stores to draw traffic. So what happens to the smaller tenants when an anchor closes its doors? A co-tenancy clause lets a renter escape the lease if the landlord doesn't replace the anchor in a specified period.
Personal guaranty release. Most landlords will insist on a personal guaranty from the tenant. However, you may be able to negotiate for a release from the guaranty after, say, two or three years.
Exclusivity. An exclusivity clause guarantees a direct competitor won't move into the same development.
Sublease. A sublease allows a tenant to sublet space to a complementary business.
Guaranteed selling points. Landlords often make a selling point of high occupancy rates or a large number of monthly visitors. Try to get these in writing with exacting concessions (including the freedom to leave) if the landlord falls a certain percentage below the guarantees.
Broker Representation
Don't go it alone. Negotiating on your own behalf won't put extra money in your pocket. The share of the commission that would have gone to your broker will probably just go to the listing agent - and you could miss opportunities for concessions.
Make sure your broker has experience in your market. Commercial real estate divides into three segments: retail, office, and industrial. Each involves different issues and market trends. The amount of free rent available, for instance, will vary both by geography and market.
Include your lawyer. A good counselor can assist in negotiating the business and legal terms of your lease.
