It’s still a tenant’s market – which means health clubs, yoga studios, fitness businesses and other wellness businesses have the opportunity to negotiate very good deal terms for your business.
Five critical lease issues to negotiate before the lease is executed include:
1) Use Definition
The use definition is the description of your business and the kinds of products and services you’ll be offering. Make the use definition as general as possible. Keep it as broad as you can by including language for any variation of your your business that you might imagine someday offering. Now is the time to do so since it can get more complicated down the line to add a specific type of use. Think five or ten years down the road.
For example, if another retail tenant leases space next door including nutritional analysis and support in their use definition, and their lease includes a non-compete which prevents the landlord from leasing to competing businesses, this might limit YOUR ability to expand your services to include nutritional counseling in the future.
That’s why a CrossFit gym that I worked with incorporated an exhaustive list in their use definition, including personal training, kids fitness camps, nutritional analysis and support, and fitness retail sales.
2) Sublease & Assignment
Things change in your business over the course of a long-term lease so maintaining as much flexibility as possible in a lease is crucial. Make sure you have the right to sub-lease, with as much flexibility as possible.
As a tenant, ideally you have rights to freely sublease and assign. Realistically, though, the landlord will most likely limit this right, often based on the use definition included in your lease. The more exhaustive your use definition, the easier it will be to sublease to all types of compatible uses.
As an example, a corporate wellness provider might want to sublease its location and move closer to that of regional employers in order to grow the corporate side of your business.
3) Access & Hours
As a wellness business or medical practice, you’ll most likely require client, member or patient access on Saturday and possibly Sunday as well as early morning and late evening hours. At the outset of the lease negotiation it is important to identify how the landlord will provide you with 24/7 access into the building for your staff and patients.
If a workable solution can’t be found through negotiation, it’s a signal that you need to continue your search for new space.
In addition, the standard operating hours for the HVAC system will have to be analyzed against the standard hours of your wellness business so that you can use the HVAC outside of standard operating hours without breaking your budget – particularly in areas with hot summer months where running overtime AC might be required for comfort.
For example, paying hourly for overtime usage of HVAC can be very expensive. An alternative might be negotiating with the landlord to install a supplemental unit giving you your own control over temperature in the space.
4) Landlord Improvements
The delineation of improvement costs covered by the landlord versus by you as the tenant, generally follows preparation of a “test fit” for the space. A test fit is a general layout of the space which the landlord will typically take the lead on preparing, particularly if they are helping to build out your facility or studio space.
The test fit will illustrate where walls will be taken down, punching bags and similar equipment will be affixed, and showers and laundry equipment installed.
For fitness and wellness businesses, issues associated with floor load, sound abatement, and ventilation will also have to be discussed. If you plan to do food preparation, kitchen and refrigeration facilities will need to be considered.
These are critical points and you will need to make sure that all issues are adequately addressed. Negotiate hard on these points so that as many costs as possible are covered by the landlord (even if your own contractors do the work).
Keep in mind that some improvements benefit both your business AND the landlord. For instance, if creating a successful studio space requires demolition of drywall that results in open, light filled areas, that demolition is probably advantageous to the landlord and not very expensive, and should fall on his dime.
5) Delivery of Premises
If the landlord is responsible for delivering the space to you consistent with your business requirements, make sure that the landlord is also responsible for meeting the code requirements for your use as spelled out in your use definition.
Zoning uses and categories will vary depending on the county in which your business is located. Sometimes there are several different zoning categories that a fitness and wellness business can fall into.
Associated code requirements will need to be thoroughly investigated (e.g., number of ADA bathrooms, utility sink).
The landlord will also be responsible for obtaining a Certificate of Occupancy. It should be clearly laid out in the lease that the commencement date will be triggered by tenant move-in. You should also spell out the repercussions if the landlord is unable to deliver the space by a certain date. This can include offset rent for you as the tenant, or landlord coverage of holdover liabilities associated with your current space.
IMPORTANT: If terms have not been negotiated and you do not have it in writing in the lease, then you do not have the protection that you need.
Address these five issues upfront and you’ll be well on the way to successfully managing managing cost and risk upfront as you negotiate your lease.
