These three clauses should be included in any lease:
(1) a renewal option, (2) a cancellation option and (3) an option to buy.
- The Renewal Option. The advantage of the renewal option is that if the owner decides to stay after the lease expires, the terms of the renewal clause are often more favorable than new terms would be under a renegotiated lease.
- The Cancellation Option. Protects the owner in the event that he or she may have to vacate the premises before the lease expires. Avoid a penalty by including a cancellation clause in the lease. This can save the potential contingent liability for the full remaining term of the lease. Negotiate an option of automatic cancellation, by the owner, with no penalties if the building suffers any serious damage that makes it impossible to use (i.e., flood, earthquake, fire). It might seem that such a matter would be understood, but legally this may not always be the case. It may depend on state law. In any case, have insurance to protect against this contingency. Generally, if a building is sold, the new landlord is obligated to honor existing leases. Still, it’s a good idea to have this obligation specified in the lease.
- Option to Buy. This can obviously prove to be very profitable. If the business has grown to the point of being financially stable, purchasing the building would become an investment rather than a monthly expense.
Some More Tips
Read every word of the lease very carefully. Always look for areas to add to the lease. For example, where it may say the owner is subject to “rules and regulations,” change it to read, “reasonable rules and regulations.” This doesn’t make the lease one-sided, but if it’s ever necessary to go to court, that word “reasonable” could become a very important factor.
Decided what is essential to have in a lease agreement. Remember, negotiation is not always a win/win situation.
Be prepared to compromise. Remember, the relationship with the landlord may be for a very long time … sometimes under the best of circumstances and other times under more tenuous situations.
Get the lease done right. The location of the store and the strength, clarity, terms and conditions of the lease become important factors in determining the odds of business success. Don’t make any verbal agreements. A nice guy could sell or die and the next landlord could be very bottom-line oriented. Have everything in writing to avoid losing the business.
Negotiation is a skill every laundry owner should have … one that is used repeatedly whether negotiating with landlords, distributors, customers or workers. Answer Yes or No to these questions.
A Negotiation Quiz
- Is it necessary to define the terms of negotiation upfront? (Yes or No)
- Should the owner ever let the other side take the offensive? (Yes or No)
- Is the use of psychology important in negotiating? (Yes or No)
- Is it best to avoid confrontations during the negotiating process? (Yes or No)
- Do you want to put yourself in your opponent’s place as you negotiate? (Yes or No)
- Is it important to keep cool during negotiations? (Yes or No)
- Yes. Before negotiations begin, the problem or point of contention should be clearly defined. Both parties should summarize their stand on the matter.
- Yes. When talking money, have an idea of what the other party expects, to make an offer that is not too high or too low.
- Yes. Use psychology to convince others that they are getting everything they want, without letting them realize what they are giving up.
- Yes. The purpose is to reach an agreement not to alienate the other party. Don’t use phrases such as “take it or leave it.”
- Yes. Think, “What will it take for them to agree?” Find out what limits the other side.
- Yes. The person who stays in control emotionally usually stays in control of the negotiation.
At the end of the negotiation, both sides need to be able to walk away with some measure of self-respect.