How to Negotiate a Lease for your First Fitness Studio
You have your ideal studio in mind. Can you picture the grand opening day? Crowds and crowds of people walk into your gym to achieve their own fitness goals. Oh, and the memberships! Can you imagine everything coming together after you lease your first fitness studio? Wait! How do you negotiate your lease for your first studio, you may ask?
If you don’t negotiate your lease for your fitness studio, more will come out of your pockets in the end. It will cost you in the long run and put a lot of pressure and stress on sales.
So much comes with negotiating a lease; if you’re not careful, you may agree to a terrible non-negotiable lease that will cost a lot to break out of.
Whether this is your first lease or you are renewing a lease, please do yourself a huge favor and negotiate it! Don’t settle and don’t assume that your future landlord won’t negotiate because they likely will.
Leases are for your PROTECTION as a business owner. Leases help GUARANTEE your occupancy with the landlord and give you lower rates over time. As you negotiate your lease for the first time (or renegotiate your lease for the first time), have a comprehensive understanding of what’s in a commercial lease contract.
Know Your Budget
Understanding your cost
- What must you have vs. what would be nice to have?
- What’s your monthly rent going to be?
- How soon can you move in?
- How quickly can you start renovations?
Once you are in business for 12 months, your revenue should be at 15% or more. So with that being said, how do you mitigate higher rent?
TIP: Be aware of a make-good clause. This clause means you must return the space to its original design when signing the lease. This clause is costly and may lead to potential risk, so BEWARE!
Presale, presale, presale...For the first 90 days, decrease your rent. No rent the first three months you open up. It would help if you used what would have gone towards rent and put it into marketing and presales. Get your sales up so your business will reach maturity. This is an excellent time to PRESALE and PROMOTE your business before paying rent.
Get Someone to Negotiate For You
Use a real estate broker or a lawyer to negotiate for you. Find someone to work through this with you who works for your best interest. Since everything is negotiable, you need to find someone who gets you the best deal.
Negotiate on More Than One Location
Negotiate on more than one location at a time. You may settle for a not-so-good deal if you negotiate on only one. In addition, if you don’t get this deal, you’ll have to start your search again.
Don’t Pay What They Are Asking For (Base Rent)
Everything is negotiable. You may be able to get your rent 15% or more, so don’t settle. However, don’t assume it is what it is.
Check Your Square Footage Yourself
ALWAYS, always, always research the property yourself. Talk to neighboring business owners. Check the square footage YOURSELF. Don’t pay for space you can’t use. If you can’t do this yourself, have someone else do it. Mistakes always happen, and this is a lease we are talking about here! Don’t pay for square footage that isn’t there.
Get Better Base Rent by Negotiating a Longer-Term
Lower rent doesn’t hurt. See if you can get better base rent by negotiating a longer lease. Yes, you’ll be staying put at your location a little longer, but this will benefit you in the long run. Who's to say you won't renew your lease anyways.
Depending on the size of your gym, many leases tend to last five years or more. Aim for ten if you could. Be mindful of personal guarantees and other things. Lock it in by negotiating a longer lease.
Look for Free Rent
As mentioned earlier, you should promote, presell, and market in the first few months of opening your gym. If you can negotiate for more than three months of free rent, go for six or nine. Again, this will benefit you in the long run. And who knows, landlords are sometimes willing to help finance the renovations.
Always look for opportunities to have free rent even if you are renegotiating. Starting and running a business is already expensive as it is.
Pay Attention to HVAC Responsibility
Pay attention to HVAC responsibilities like air conditioning. Don’t assume responsibility yourself. Will your landlord have a warranty in place? If so, how long will this warranty last, a year perhaps?
Negotiate Your Finish-Out Allowance
These are your tenant improvement dollars. Like many other things on your lease, this is negotiable. See if your landlord will cover your finish-out allowance for you (or half of it). Doing this, your rent/lease will be higher, but this might be best for you.
Negotiate all Available Perks
Perhaps there is free Wi-Fi available in your building/center. Is there employee parking and free trash pick-up in the back lot? Whatever it is. Negotiate everything. You never know. DO NOT JUST SIGN AND SETTLE.
Clauses to Negotiate
Add a Sublease Clause
Make sure you can sublease your gym just in case things don’t go according to plan. IT’s always good to have a dream “c,” and this is your plan “c.” I’m not here to put doubts in your head or anything, but further down the line, let's say you decide this isn’t what you want to do or sales aren’t doing too good. You want to have a lease that less you sublet it to somebody else.
You need to protect your investment. You’ll be doing this by having a sublease clause.
Have a Co-Tenancy Clause
Business owners who negotiate leases tend to forget to negotiate on their lease. Have a co-tenancy clause. In most centers, you have an anchor tenant. What this clause does is if that anchor tenant moves, you can get out of this lease. When that anchor tenant moves, it will change the entire dynamic of the center/ building you are probably leasing at.
Include a Clause that Prevents Leasing to a Competitor
The last thing you want to do is compete in the exact center for something you have worked so hard for. Hopefully, you have a lease as a location where there aren't any fitness gyms near you. You want gym competition to be at an all-time low, which needs to be included in your lease. So have a non-compete agreement into this lease.
Closing your Lease
Negotiate Anything Related to Forced Closure
Do you remember the beginning of the pandemic? Many businesses (both big and small) were forced to close? However, force closure wasn’t a part of many leases, and landlords still required rent to be paid. Learn from the past, and get this in agreement! If you are ever forced to close, you want this to be addressed. Also, negotiate on what happens if you miss rent, or the landlord decides to sell the building. This information is what you need to be prepared for when negotiating a lease.
This is an exciting and critical time for you as a gym business owner. Whether this is your first lease, expanding to another location, or renewing a lease, don’t ever settle. You will live with this lease for a long time, so make it the best you can be. You can do this.