16 Tips for Successful Negotiating Your Next Store Lease
A commercial property lease for a laundromat is a rare breed – truly an animal all its own. So, when negotiating such a lease, be sure to do your research.
Your store’s lease will be among your biggest expenses, so it’s important to understand the various types of commercial leases and how to negotiate them in your favor.
What You Need to Know
When negotiating a laundromat lease, keep the following in the back of your mind:
- A laundry lease is the backbone of your business and must include a term that’s long enough for you to recoup your investment. You’ll need enough time to eventually sell your business with sufficient term leftover for the buyer.
- The rent, rent increases, construction free-rent period and construction costs must be manageable and controlled throughout the lease.
- A laundromat has a tremendous amount of hard and non-transportable infrastructure and tenant improvements. The landlord needs to understand that, as a laundry tenant, you must be extremely cautious regarding anything that would prematurely terminate the lease. Notice of default and “curing” the default are extremely important lease clauses for a laundromat business.
Lease Types
There are multiple types of leases, based on who pays for each of the property’s expenses. Understanding them is half the battle. Here’s a quick rundown:
Single Net: The tenant pays for the rent and his or her share of the property taxes.
Double Net: The tenant pays for the rent and his or her share of shopping center’s insurance and property taxes.
Triple Net: The tenant pays for rent and his or her percentage of the shopping center’s insurance, property taxes and common area maintenance costs.
Gross Lease: The tenant pays a flat monthly rate, which includes rent, taxes, utilities, maintenance fees and security fees. The benefit of a gross lease is its simplicity for the tenant.
Modified Gross Lease: The tenant pays the rent and utility costs, while the landlord pays all of the other costs.
Negotiating Tips
Although there’s much to consider when it comes to negotiating a lease, being prepared and proceeding professionally – alongside an agent or lawyer – are key. Here are a few helpful tips to follow before signing on the dotted line:
1. Don’t get emotionally attached to a location. If possible, attempt to negotiate on two locations at once for more negotiating power.
2. Know your budget, as well as your “must-have” and “nice-to-have” items, ahead of time.
3. Proceed from a professional basis with a professionally drawn floorplan, a well-crafted business plan, a financial statement and a credit report ready for disclosure. Show the landlord that you are an entrepreneur with whom he or she will want to do business.
4. Hire a good lawyer or agent to help you with these negotiations. They are experts at sifting through the legal jargon and clauses to help get you what you want and need for your business.
5. Understand that your store will become a “mini-anchor” of that shopping center – and that your customers will be there for two hours each and every week and will patronize the center’s other tenants as well. This fact gives you bargaining power and added leverage during your negotiations.
6. Be prepared to concede lease points, and know ahead of time which lease points you can concede and which you can’t.
7. Go in under asking price. Landlords will ask for the upper amount of what they think a tenant might pay. Come in at a number that’s 10 percent to 15 percent lower. In the end, you’ll likely settle somewhere in between those two figures.
8. Get a lower base rate by negating a longer lease term.
9 Negotiate over the lease term. Make certain you have a long enough lease to ultimately sell the laundromat to another owner.
10. Write in a reasonable “cure” period – this is the length of time you get if you default on the lease. Remember that you can easily end up in default simply because your bank credited your deposit to the wrong account and you wrote a rent check without adequate funds. In default, the landlord will seek to recover all past due and unpaid rents, damages, inducements and more.
11. Write in a co-tenancy clause. This will enable you to break or lower your lease if a major tenant that drives business to you moves out of the shopping center.
12. Verify that the building’s square footage is correct. After all, you’ll be charged on that commercial square footage.
13. Take note of the HVAC responsibility, and find out if you can turn over that responsibility to the landlord or negotiate caps per year.
14. Pay attention to the “fixturing” period. This is the time where you’re fixing up your space. Some landlords require you to redo the space yourself, but offer “rent abatement” during that timeframe. Rent abatement is an agreement between the landlord and the tenant that provides a period of free rent. Other landlords might require rent, but will redo the space for you. A laundromat takes a long time to develop, so I recommend a “fixturing” period of six months.
15. Negotiate for those “nice-to-have” perks, such as advertising space on pole/monument/building signs or exclusive customer parking in front of your building.
16. Having a preapproval from your lender will strengthen your position with regard to lease negotiations. If your lender requires a landlord lender agreement and/or waiver, have this agreed upon with the landlord during the lease negotiation.
Do Your Research – And Lawyer Up
Although negotiating a lease might seem formidable, a positive end result will serve you well over time — allowing your laundromat to succeed and thrive. My advice? Before ever looking for a laundry location, take the time to become versed in commercial lease jargon and clauses. Then, bring a good lawyer or commercial real estate agent on board to help you through the process.
