Industry Professionals Share Tips and Strategies for Successful Lease Negotiation
Securing an optimal lease is crucial for laundromat owners, impacting both financial stability and operational success. In the competitive landscape of commercial real estate, especially in busy urban markets, understanding and negotiating key lease elements can significantly influence a laundromat’s profitability.
Key considerations include the length of the lease, rent structure, and who bears the cost of property maintenance and repairs. A well-negotiated lease can offer predictability in expenses and mitigate potential financial strains, while a poorly structured one can lead to unexpected costs and operational disruptions.
The negotiation process is often complex and requires careful consideration of various factors. Owners should focus on securing long-term leases to amortize initial investments and maintain stability, as well as ensuring that all relevant maintenance and repair responsibilities are clearly outlined. Furthermore, leveraging market research and involving legal and real estate experts can help in obtaining favorable terms.
Additionally, avoiding common pitfalls, such as overlooking critical clauses or failing to account for future business needs, is essential for establishing a successful and sustainable laundromat operation.
This month, five long-time laundry professionals share their tips for negotiating a lease you can live with:
Ross Dodds
Luxe Laundries
Los Angeles
We want to see 10- to 15-year leases with another two to three five-year options. Also, the entire lease – including those options – should have predetermined increases of 2 percent to 3 percent annually. Moreover, the entire lease – again, including options – must be assignable.
We ask that air conditioning be added, upgraded, or serviced to satisfaction as part of the lease. Most leases I see don’t include the landlord’s responsibility after signing, so it’s important to get those issues handled up front.
It’s the same issue with glass and doors, landlords typically won’t be responsible after signing – so, if etched or painted, we will want those replaced at the beginning.
A huge clause we’re seeing more and more here in Los Angeles is a demo clause or relocation clause. You have to be very careful with this, as a laundromat is not a “pick-up-and-move-down-the-block” business, and the infrastructure alone can be hundreds of thousands of dollars.
We also try to get our personal guarantees removed if we sell to an approved buyer.
In Los Angeles, we’re seeing many commercial properties being passed on to the next generation, which often has a different idea about running the shopping plazas, including wanting a certain market rent. Traditionally, commercial landlords have considered laundromats to be anchor tenants and reliable longer-term tenants, which typically netted laundry owners more favorable rent terms due to that reliability and “anchor tenant” status. However, some of the newer, next-generation landlords don’t always view laundromats quite as favorably – which is why longer, more set-in-stone leases are so important to today’s laundromat owners, because they will keep you from possibly being pushed out with the sale or transfer of ownership of your shopping center.
Matt Miller
Coin-O-Matic
Alsip, Ill.
Laundromat leases are typically much longer in length than leases for an average business, and thus they’re worth more than the typical business lease. To me, the elements of a laundromat lease that are most critical to the long-term success of that business are the cost of the lease and the specific expenses that are covered within the lease. The higher the expenses that are covered – such as HVAC maintenance, snow removal, roof repair, and so on – the easier it will be for the owner to predict the cost of the space over the course of the term. Clearly, try to get as many property-related expenses covered in the cost of your laundry’s lease.
The cost of the lease is typically the second-largest line item, after payroll, in a laundromat owner’s expenses category. So getting it right is critical to any laundry business’ success.
When it comes to effectively negotiating rent and other financial terms, work with a mentor who has your best interests in mind and a landlord you can trust to arrive at a favorable lease. Of course, make certain to have good legal representation as well.
I heard a story about a laundromat owner getting evicted because his lease specified “self-service laundry” as the nature of the business. However, he also was offering drop-off laundry and pickup-and-delivery services, so the landlord was successful in getting that store owner evicted. The lesson there is to be sure that your lease covers all of the services and businesses you want to offer at your laundromat.
All in all, the best advice for negotiating a lease you can live with is to not rush the process. Also, understand that it doesn’t hurt to have more than just one option for the location of your laundromat. A laundry lease is a lengthy commitment, so don’t rush the process of negotiation and execution of that document.
Karl Hinrichs
HK Laundry Equipment
Armonk, N.Y.
In the laundromat business, the lease agreement is a cornerstone of financial stability and operational success. Understanding how to negotiate the terms effectively can have a profound impact on profitability. Let’s delve into the essential elements of laundromat leases, strategies for negotiation, and common pitfalls to avoid.
When it comes to leasing a space for a laundromat, three main factors dictate the economic viability of the operation: lease length, total rent (including base rent and triple-net expenses), and rent escalations. These factors directly influence the laundromat’s profitability because they determine the fixed costs that can significantly impact the bottom line.
For laundromats, rent is the primary negotiable expense. It can account for 20 percent to 50 percent of a laundromat’s gross revenue. Unlike other costs such as labor, equipment loans, and utility bills, which are typically fixed and non-negotiable, rent can be adjusted through negotiation. Therefore, securing favorable rent terms is crucial for maintaining a profitable operation.
When negotiating your lease, here are some strategies:
Understand your position. Different landlords may require varied approaches, but a common theme is to position laundromats as valuable long-term tenants. Laundromats serve an essential community function, operating reliably even during economic downturns. By emphasizing the steady nature of laundromat business and its consistent demand, you can argue for more favorable lease terms.
Leverage market research. To strengthen your negotiation stance, thorough market research is invaluable. Consult with commercial real estate brokers to determine the rental rates for similar properties in your area. Gather data on what comparable retail spaces are charging for both base rent and triple-net expenses. This information enables you to create a comparative chart and negotiate from a position of knowledge, advocating for a rent that aligns with market rates.
Review lease terms carefully. When reviewing a lease, pay attention to all terms and conditions. Note any clauses that may pose problems now or in the future. Discuss these issues with the landlord before signing. If you feel uneasy about any aspect of the lease, request additional time for your attorney to review it. A rushed decision can lead to costly mistakes, so approach lease negotiations with care and patience.
Negotiate escalations. Escalations, which involve compounding increases in rent over time, can significantly affect long-term costs. Aim to negotiate monetary increases rather than percentage-based ones. Seek longer intervals between escalations and consider indexing taxes to a specific year, so you only pay for increases beyond that year. Alternatively, you can negotiate to have taxes included in your base rent to avoid future penalties if taxes rise.
Secure tenant improvements. Landlords may offer inducements to attract tenants, especially in larger shopping centers. These incentives can include financial contributions for space improvements or direct enhancements to the space as part of the lease agreement. Negotiate these benefits to reduce initial costs and improve your laundromat’s functionality and appeal.
Common lease mistakes include overlooking problematic clauses and failing to negotiate key terms effectively. Always read your lease thoroughly and address any concerns with your landlord before signing. Ensure that any promises or extensions are documented in writing.
One notable lease horror story involves a store owner who had a five-year lease with an option for another five years. The landlord’s intrusive behavior prompted the operator to build a new laundromat on nearby land, effectively creating a new business just to avoid the problematic landlord. This story illustrates the importance of ensuring that lease terms protect against potential landlord issues and maintaining a positive working relationship.
Above all, successfully negotiating a laundromat lease requires a strategic approach, thorough research, and careful review of lease terms. By understanding the critical factors, leveraging market data, and avoiding common pitfalls, laundromat owners can secure leases that support long-term profitability and operational success. Whether negotiating rent, addressing escalations, or securing tenant improvements, a well-informed and cautious approach can make a significant difference in achieving favorable lease terms.
Joe Dan Reed
Splash ’Em Out Laundromat
Lexington, Ky.
Securing a well-structured lease is pivotal for the success of a laundromat business. Given that rent is often the largest negotiable expense, understanding and negotiating key lease elements can significantly impact your business’s financial health and operational stability. In my opinion, the following are the most critical lease components for laundromat owners, as well as some strategies for effective negotiation.
The most important laundromat lease elements include:
Lease term: A long-term lease is essential for establishing a customer base and amortizing initial investment costs. Typically, a 10-year lease with two five-year options is ideal, allowing sufficient time to install new equipment and evaluate future needs. Short-term leases can hinder your ability to secure traditional financing and may disrupt business continuity.
Permitted use: Ensure the property is zoned appropriately for a laundromat. Check for any restrictions related to operating hours, signage, or equipment that might affect business operations. Proper zoning and minimal restrictions help avoid operational disruptions.
Maintenance and repairs: Define who is responsible for maintaining and repairing essential systems like HVAC, plumbing, and electrical. Evaluate the property’s condition before taking possession and ensure necessary repairs and improvements are addressed upfront.
Utilities and infrastructure: Adequate utilities are crucial for laundromat operations. Confirm that the property has a two-inch water line, a four-inch drain, and at least a 400-amp electrical service. These requirements are essential for efficient operation and to avoid costly upgrades later.
Tenant improvements: Negotiate tenant improvements in the Letter of Intent (LOI). This document is your opportunity to request necessary alterations and upgrades to the property. Understand the landlord’s process for approving modifications to avoid delays.
Competition and exclusivity: Secure a clause in the lease that prevents the landlord from leasing adjacent spaces to competing laundromats. This exclusivity helps maintain your competitive edge in the market.
Termination clause: Include options for early termination if necessary permits are not obtained or if business conditions change. Ensure you have the ability to sublet or assign the lease, providing flexibility if you decide to sell the business.
Insurance and liability: Confirm insurance coverage requirements and responsibilities for property damage or accidents. This ensures you’re protected against potential disputes and financial liabilities.
Rent concessions: Negotiate for rent concessions, such as a rent-free period, to offset startup costs. A common request is for one year of free rent, which can significantly aid in managing initial expenses.
Your lease terms will have a direct impact on your financial planning and budgeting. A long-term lease is crucial for obtaining financing, as lenders prefer stable, long-term commitments. A well-structured lease allows for predictable expenses and helps in accurately forecasting cash flow and budgeting for future needs. Escalations and other terms must be managed carefully to avoid unexpected financial strains.
Now, here are some strategies for effective negotiation:
Utilize the Letter of Intent (LOI). The LOI is a crucial negotiation tool where you outline all your requirements and desired terms before signing the lease. Ask for more than you need, as landlords often negotiate down, which could still result in favorable terms for you.
Negotiate maintenance responsibilities. Address maintenance responsibilities in the LOI. For example, negotiate a cap on repair costs, such as a $250 deductible for HVAC repairs. This minimizes your financial risk and ensures manageable upkeep costs.
Leverage market research. Use market research to your advantage. Present data on market demand, customer demographics, and competitor concentrations. Highlight industry trends, location advantages, and revenue projections to strengthen your negotiation position.
Lastly, here are some common mistakes to avoid:
Inadequate lease review. Failing to thoroughly read the lease or not consulting an attorney can lead to overlooked terms and potential issues. Always have a legal expert review the lease before signing.
Overlooking additional expenses. Not accounting for utilities, maintenance, and common area expenses can strain your budget. Ensure all potential costs are considered in your financial planning.
Ignoring future growth. Focusing solely on current needs without considering future expansion or changes can be detrimental. Ensure the lease accommodates potential business growth.
Neglecting parking needs. Insufficient parking can deter customers and impact business performance. Ensure the property has adequate parking facilities.
One notable success story involved a landlord’s attempt to relocate a laundromat within the shopping center at the tenant’s expense. The tenant had included a clause in their lease allowing for relocation only at the landlord’s cost. This clause, highlighted in the LOI, protected the tenant from incurring the $500,000 relocation cost and ultimately prevented the move.
Successfully negotiating a laundromat lease involves understanding critical lease elements, leveraging effective negotiation strategies, and avoiding common pitfalls. By carefully reviewing lease terms, negotiating comprehensively, and utilizing market research, you can secure a lease that supports long-term success and operational efficiency. Always remember that the LOI is your most powerful tool in shaping favorable lease terms and protecting your business interests.
Karl Keefer
Laundry Services Company
Woodridge, Ill.
Clearly, obtaining the right lease is fundamental to the long-term success of your laundromat business. As a laundromat owner or investor, understanding and negotiating crucial lease terms can significantly influence your financial stability and operational efficiency. Here’s a look at what factors to focus on and what strategies to employ for a successful lease negotiation.
The length of the lease is a primary factor in ensuring business stability and financing feasibility. A long-term lease, such as 10 years with options to renew, provides substantial leverage. It allows for amortization of initial costs and enhances the property’s value, which can be advantageous when the landlord seeks refinancing or loans. Lenders often require that the lease extends beyond the term of any equipment loans, making long-term leases essential for financing.
Next, keeping rent as low as possible for as long as possible is crucial. Negotiate terms that ensure the rent does not exceed 25 percent of your gross revenue. This balance helps maintain profitability while offering competitive pricing for your services. Be prepared to walk away from a deal if the terms do not align with your financial projections.
In addition, ensure the property is zoned appropriately for a laundromat and that there are no restrictions on operating hours, signage, or equipment. Proper zoning and minimal restrictions help avoid operational issues and support business growth.
Also, clearly define who is responsible for property maintenance and repairs. Opt for a gross rent lease if possible, as it includes all expenses. In triple-net leases, negotiate to limit additional fees and maintenance responsibilities to ensure costs remain manageable.
Confirm that the property has adequate water, drainage, and electrical infrastructure to support laundromat operations.
Negotiate tenant improvement (TI) allowances in the Letter of Intent (LOI). A long-term lease enhances the value of the landlord’s property, making them more likely to provide substantial TI funds. Start high in your requests and emphasize the value your laundromat adds to the property.
Moreover, be sure to secure a clause that prevents the landlord from leasing adjacent spaces to competing laundromats. This exclusivity helps maintain your competitive position and customer base. Also, include provisions for early termination if necessary permits are not obtained or if business conditions change. Ensure you can sublet or assign the lease, offering flexibility if you decide to sell the business.
And confirm the required insurance coverage and responsibilities for property damage or accidents. This clarity helps avoid disputes and financial liabilities.
A well-negotiated, long-term lease allows for stable rent costs and supports realistic vend pricing. Ensuring that rent remains below 25 percent of gross revenues helps maintain profitability and supports competitive pricing. Avoid becoming emotionally attached to a location; if the lease terms do not meet your financial needs, be prepared to explore other options.
When negotiating your lease terms, understand that the LOI is a critical tool. Outline all of your requirements, including tenant improvements and rent concessions. Starting with high demands allows room for negotiation, often resulting in favorable terms.
Also, engage a knowledgeable broker or real estate agent with experience in laundromat leases. Their expertise can be invaluable. Additionally, hire an attorney to review the final lease terms to ensure all legal aspects are covered.
Be sure to leverage market research to demonstrate the value your laundromat adds to the property. Highlight the impact on long-term rent rolls and the increased valuation of the property. And definitely emphasize the stability and necessity of laundromats compared to other businesses.
There also are some common lease mistakes to avoid – the biggest of which are failing to thoroughly review the lease or consult with an attorney, which can lead to overlooked terms and potential issues. Always ensure a legal expert examines the lease before signing.
What’s more, not negotiating for control over maintenance and repair costs can lead to unexpected expenses. Aim for clear terms on who is responsible for various repairs and maintenance.
Additionally, ensure adequate parking and proper access are maintained. Protect adjacent parking spaces and ensure that the lease includes provisions for ingress and egress. It’s crucial to pay close attention to lease renewal options and notification requirements. Misunderstanding these terms can jeopardize your ability to renew the lease.
Negotiating a laundromat lease requires careful attention to critical elements such as lease term, rent structure, and maintenance responsibilities. By leveraging market research, engaging professionals, and understanding key terms, laundromat owners can secure favorable leases that support long-term success.
Remember, a well-negotiated lease is not just a contract – it’s a strategic asset that can significantly impact your business’ profitability and stability.
