Commercial Real Estate Focus
In my most recent blog, I discussed some important factors to take into consideration during your search for a new gym location. Once you’ve identified the dream location, the hard work is just beginning. It’s now time to talk lease terms.
Since many of us are not fond of confrontation, it can be difficult to ask probing questions and know when to push back if it is in the best interest of your business. As in any buying or selling process, you need to identify your ceiling coming in, and be prepared to walk away from the table.
The best way to prepare for this type of interaction is to outline your questions in advance of the discussion. I’ve accumulated extensive experience on this front after having negotiated new leases, signed lease extensions, and even created handshake agreements as a subletting tenant. Here is a list of ten considerations to keep in mind as you discuss the terms of your lease.
1. PROTOCOL FOR REQUESTING MAINTENANCE
Things are going to break. The roof will spring an occasional leak. The lock on your door may suddenly malfunction.
Wear and tear happens, and your landlord will likely be happy to take care of the repairs. You need to ask how you will go about requesting assistance with maintenance and/or upkeep, and what you can expect for a typical response time.
Can I send a quick text message to the building super? Do I need to directly email the landlord? Is there an on-line project request form?
If you don’t ask the landlord to set expectations from the start, you are likely to receive inconsistent service throughout the duration of your lease.
2. EXPECTATIONS REGARDING DAY-TO-DAY NOISE
Daily operation of a strength & conditioning facility is noisy. We play loud music. We drop heavy weights. We cater to a population of boisterous athletes. As long as you are up-front about this during the lease negotiation process, you should be good to go. Make sure that your potential landlord is 100% aware of this reality because he or she will likely receive the occasional call or email from another tenant regarding your noise. It’s best that they not feel that they’ve been misled when that time comes.
If your business currently operates in a space which you’re looking to move out of, consider inviting the landlord or property manager to visit during your hours of operation. This will give him/her an opportunity to understand the nature of the training environment you intend to create in their space.
3. RESTRICTION OF COMPETING BUSINESSES
Request the right to refuse the introduction of a business which will negatively impact your earning potential. Your landlord’s primary objective is going to be achieving 100% occupancy, and not all of them are going to be terribly concerned with your ability to thrive. What is keeping them from allowing a big-box gym to sign a 10-year lease occupying 5-times as much space as your business?
Take this step before signing a lease and you can ensure that a competing gym will never open their doors on the premises.
4. HVAC (AIR CONDITIONING UNIT) MAINTENANCE RESPONSIBILITIES
Our first gym didn’t have air conditioning, and we suffered. With this in mind, my first recommendation is to find a space with central air. My second, is that you have a clear understanding of your responsibilities relating to its maintenance.
There are important questions to ask the landlord: If it breaks, am I responsible for the cost of fixing it? Do you mandate that we hire a specific HVAC contractor who is already approved to work on your property? Do you require documentation of annual maintenance? Who pays for air filter replacements?
Without a clear understanding of this aspect of your lease, you could find yourself blindsided by large expenses.
5. UNDERSTANDING OF CAM (COMMON AREA MAINTENANCE) CHARGES
Common Area Maintenance charges consist of landscaping, snowplowing, common area electric and gas, and management of the property (including salaries and health insurance). You can think of this as the cost of operating the property as a whole, including building insurance, cleaning, toilet paper, repairs and maintenance.
CAM charges are a much easier pill to swallow when you fully understand the spectrum of expenses they cover. Our CAM charges are just a shade under $4.00 per square foot in both Massachusetts and Florida.
6. UNDERSTAND THE DIFFERENCE BETWEEN RENTABLE AND USABLE SPACE
Is the proposed square footage Rentable or Usable that you are paying for? Usable is the actual square footage that you occupy; while rentable is the square footage you are in, plus the shared space such as common hallways, conference rooms, and bathrooms.
The landlord will tell you what percentage of the property is made up of common area space and increase your usable number accordingly to determine your rentable figure. Let’s say you’d like to rent a 5,000 square foot (usable) unit and common area space accounts for 10% of the square footage of the property. You can expect your lease to state that your rentable space is 5,500 square feet.
7. DUMPSTER POLICY
Are dumpsters shared, or individually assigned to units? Are you free to work with the trash removal vendor of your choice? Are dumpsters situated conveniently in relation to your proposed unit? Are you responsible for clearing any snow which may accumulate around your dumpster? Is there an opportunity to recycle on-site? Does your town require that a permit be issued to keep a dumpster on the property?
These questions may seem trivial, but hauling your trash from one end of a large property to another in snow or rain could be a deterrent during your space selection process.
8. INSURANCE REQUIREMENTS
Most landlords will ask you to provide a certificate of insurance coverage. Each property owner has their own minimum level of required coverage. This will impact the amount you need to spend on a policy. The minimum required coverage figure is typically negotiable.
You can accelerate the process of securing a policy (or modifying an existing one) by having answers to important questions regarding total number of fire extinguishers on the premises, number of exits, and accessibility to an AED defibrillator. You can also expect your policy provider to request access to your space soon after signing a contract, as they typically protect their investment by auditing your preparedness for potential dangerous situations.
9. POLICY ON SUBLETTING
Inquire about the policy on subletting if you intend to add complimentary services in the future. It would be a hassle to fine-tune the details of a partnership with a physical therapist or yoga practitioner only to later find out that your landlord has a policy stating that subletting to new tenants is not permitted.
10. INTRODUCTION TO OTHER TENANTS?
Depending on the size of the property/building you are considering, there may be an abundance of potential clients already working under the same roof. Don’t hesitate to ask for an introduction to your fellow tenants. We operate within a building which hosts more than 100 working professionals. All of them are potential morning strength camp participants or semi-private training candidates during the afternoons and evenings. Consider offering a “building discount” to entice the neighbors and drive revenues.
One nice thing about being a fitness service provider is that your existence within the building can be positioned as a selling point for the landlord when giving tours to potential tenants. You have the opportunity to earn goodwill by extending the offer for your space to be viewed under these circumstances. Remember, if you can maintain an amicable relationship with the landlord, you’ll find day-to-day and month-to-month operations will run smoothly.
Real estate taxes should be expected, and qualify as the bonus point on this list. These figures are not negotiable. They are dictated by the town you are operating in and are also available via public record. With this in mind, it is a good idea to ask to see the last five years of real estate tax numbers to understand the potential increases or fluctuations which could be expected moving forward.
MY LAST AND BEST PIECE OF ADVICE
If I could give one great piece of advice going into this process, it would be to treat your potential landlord as a business partner. Your rent dollars make it possible for the building employees to earn a living and keep the property presentable, while their space is the key to your being able to provide an exceptional service. Establish a relationship which is mutually beneficial and you are likely to enjoy your time as a tenant for the duration of your lease.
Commercial Real Estate Focus
Thank you to Pete Dupuis, Vice President and business director of Cressey Sports Performance for allowing us to republish this valuable, commonsense-based article. Dupuis’ post is the first in a month-long commitment to providing you with valuable insight into commercial real estate information, including evaluating spaces, negotiating terms, and common lease styles and concerns. Gym Insight is a gym management software company developing the industry’s easiest-to-use, and most affordable, gym software. Call today to learn how our software will free up time while decreasing costs. Or visit our Gym Owners Podcast on the YouTube channel for our customer’s stories, ideas, and product reviews.