Never Neglect Your Lease

By Brian Brunckhorst, CLA Member posted 28 days ago

  
Your lease can make or break your business, and that is especially true in the case of a laundromat. This is because, in most cases, a laundry business will last only as long as its lease.

Leases are complicated, legalese-laden documents – typically at least 10 or more pages in length. In some cases, they can exceed 30 pages, as was the case with one of my stores.

It’s crucial to understand every provision contained within that document. After all, when you sign a business lease, you’re declaring that you or your company (sometimes both) promise to pay the entire amount over the course of the lease, regardless of whether or not you operate the business for the entire length of time. In other words, if you sign a lease for $5,000 a month for 10 years, you’re on the hook for $600,000.

With that said, remember that the landlord wants a good tenant just as badly as you want to be in business – so it’s in everyone’s best interest to try to achieve a workable lease for both parties.

When negotiating, stay calm. Don’t get upset about some of the crazy terms the landlord may be requesting. In many cases, landlords will ask for everything under the sun in order to tilt the lease as much in their favor as possible. Don’t blame them for trying – because you’ll be seeking the most favorable conditions for yourself as well.

Don’t be in a hurry to give into the landlord without getting something in return. As an example, if the landlord is willing to give you only a 10-year lease and a five-year option, perhaps accept these terms, but only if he agrees to keep your rent flat for each five-year period.

Also, when asking for a concession on your lease, state your reasons for needing the concession and then be quiet – until the landlord speaks. Silence very often can be your biggest ally in lease negotiations.

Here is my own personal list of the top 10 items I would try to negotiate into my “dream lease.” Certainly, there are other factors to consider, and your “top 10” may be slightly different.

• Length of at least 15 years or more including options – my preference is to have a five-year lease and two or more five-year options that are well defined.

• At least one five-year option to renew the lease, again that should be well defined.

• Rent increases no more than once every five years

• Rent increases to be no more than the increase in the CPI, with a cap of 4 percent per year.

• Rent payments to begin at no more than 20 percent of gross revenue (including triple net charges, if any).

• No triple net charges.

• Right to assign the lease

• First right of refusal to buy the building.

• Cancellation option, in case the building is damaged.

• Lease to not require a personal guarantee

One of your main objectives is to get the longest lease possible because you want enough time to recapture your investment and still be able to make a reasonable profit. If the length is shorter than 10 years, including options, I would either go back to the seller and get a lower price, or walk from the deal.

A word of caution: you don’t want a longer lease at the expense of higher payments or large annual increases in rent. In fact, by agreeing to a longer lease, you should receive a reduction in the rent, because you’re committing to the landlord for a longer period.

Lastly, if you’re negotiating with a property management company’s leasing manager, rather than directly with the landlord, be careful. Leasing managers’ sole job is to negotiate leases, and they are experts. Even if you’re somewhat familiar with lease negotiations, it may be worth the money to hire a professional lease negotiator to represent you during these negotiations. In the long run, pro negotiators most often will save you far more money than they cost you.

In general, if you can negotiate the top five items on my list in your favor, you should end up with a fairly strong laundry lease. But never forget that the negotiation is a give and take, so it’s unlikely you’ll receive everything on your wish list.

Do your homework, be ready to negotiate – and never be afraid to walk away from a bad lease.

[Editor’s Note: This column is not intended to provide specific legal advice. Before signing your lease or any legal/business document, it’s highly recommended to consult with an attorney or legal professional.]
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