Reading a Lease Agreement
Congratulations, you’ve found a space for your dojo and are ready to sign a lease! Read every word! Read every word as if each one was a dollar, because if you do not adjust the wording on some lease item or condition to your favor, no one is going to give it to you. Nothing in the lease is set in stone until you sign it. Everything is negotiable in your agreement — everything! Maintenance - Check the schedule and exactly what and when they do it. Check the fees. Check who does it, which company, and what you have to do. Advertising - Determine if you are allowed to display flags out in the parking lot, put up large balloon bouquets, have those large blow up balloon items, etc. promoting your business. Signage - Each business has a certain kind of sign attached to the building. It is either canned letter (one light per letter or a large box sign with a front on the box with the name). Put in writing what type is allowed, and what is acceptable into the lease. Otherwise, if the mall is sold, the new owners may require you to change the sign to what they prefer. The signs run anywhere from $5-15,000! And, determine who is responsible for changing those bulbs, etc. Each one of those bulbs in a box light is $125 plus the fee for having a maintenance person come out to change the bulb. Security - Most strip malls negotiate either with the local police or a private company for some for of security coverage, whether it be in the form of patrols, and/or cameras. This is a line item on the lease, costing a percentage over and above the base lease cost. This is negotiable as to cost. Ascertain exactly what and who is doing providing security. Yearly increase to rent. Again, negotiable. Do not accept it when someone says rent will only go up $1 a month a year — that is actually several dollars per square foot. You can actually stipulate the precise number or designate a percentage such as .02% or on whatever you agree. Do the math. One negotiator told us “only 1$ more each year.” That actually came out to a 7% increase, and over 5 years that would be a 35% increase. Do the math! Operating and Management fees - Management companies want to make money, they want your money. The more they negotiate in the lease the more they get paid. Operating costs may run anywhere from 1-4% a month as an attached fee to the lease. This is negotiable. They are glorified secretaries! Do the math as to what you want to pay. Cost of operating a retail business within your business - Smart school owners will have a retail business: selling uniforms, equipment, etc. Some management companies will try and get you to sign a form, giving them a percentage of your retail income. This is not a mandatory agreement, and you should not sign or agree to this arrangement.. Sublease - Are you allowed to sublease and do you have to let the landlord know about it? Do you have to pay them a percentage? You should be allowed to sublease without involving the management or landlord. Leave it out of the lease. Tenant improvements - Who will do the improvements, when will they be finished? Exactly what will they do, before you move in to ready the space? If you are moving into an old auto body shop, will they do an environmental analysis of the existing space to get it ready for you? Structural changes - Who owns the changes to the space after you move in? If you add anything that attaches to the building it becomes the ownership of the landlord. Items such as wood flooring — it is now the landlord’s, as well as another bathroom, erecting dressing rooms, changing the lighting,etc. Lighting - Who is responsible for the outdoor lighting, changing the bulbs, etc.? The indoor fixtures are your responsibility. However, if the electric company comes to you and says the fixtures need replacing, contact the landlord, and make certain this is written into the lease. Utilities - AC units, electrical panels, thermostats, water pipes etc should all be checked before signing. Never agree to anything until you have had it expertly examined. Management does not have to tell you that the pipes are rusted out, or the AC unit condensers are broken and leaking. If you sign before checking, you would be responsible for all repairs! Paint - Find out if you can change the color of the interior paint and if you are responsible for painting after a certain period of time. Garbage pickup - Is it a fixed fee or a percentage of the entire mall? You will only generate a small amount of garbage, so why should you pay more that the restaurant next door, even though your square footage may be greater? Taxes - check with the city and county as to what the actual base is and do a history check up of the recent raises. “First right of refusal" - This means that any other "senior tenant" to the mall will have the right to lease your unit when the lease comes up for renewal . You would be out of a site for your school, regardless if you never missed a payment and were an awesome tenant! That senior tenant would have the right to take your unit. You may request this clause to be taken out of the lease, or at least have a “warning notice” added, such as 1-2 years (not 90 days, as we were given!) Expansion - Another condition to be wary of is if the mall wants to expand any of the existing other businesses, or their own site, into your space, and they will move you to another site at their costs. It does not say that the site has to be acceptable to your business, or suitable for your business, it just says it will be larger. Again, do not accept the clause, or the wording. Make the lease work for you . Late fees - is your late fee a fixed amount or a percentage? A 5% late fee of a monthly payment of $8,000 is $400! Every clause, paragraph, sentence in the lease is written to benefit the landlord. You need to read every line and try to have it reworded if possible to be neutral or represent you better. Only you will protect your interests, so remember that everything is negotiable before you sign.