Navigating the Path to Resigning or Extending Your Gym’s Commercial Lease
As a gym owner, the decision to resign or extend your commercial lease is one that requires careful consideration and strategic planning. Whether you’re looking to continue your current lease or negotiate new terms, understanding the legal and practical aspects of this process is essential. Here are some key tips to guide you through this journey:
1. Review Your Current Lease Agreement
Before making any decisions, pull out your existing lease agreement. Look for clauses that outline the notice period required for resigning or extending the lease. There are a couple of clauses that might provide information. Your lease might designate a specific number of extensions. For example, it might give you an automatic right to one or two extensions. Your lease might assume an automatic renewal unless you tell the landlord otherwise. However, most leases will put the requirement on the gym owner to notify the landlord of an intention to extend. The lease will likely give you a required notice period. For example, the lease may require you to give six months notice in writing. Regardless of what your lease says, make sure you comply with these terms. Failure to do so can lead to legal complications.
2. Notify Your Landlord in Advance
Communication is key. Reach out to your landlord well in advance of the notice period specified in your lease. This not only ensures compliance but also opens the door for negotiation. If you lease says that you have to notify your landlord six months in advance of the termination date, start communicating eight months in advance. If you wait until six months, you can lose a lot of negotiating power because the landlord knows you are on a tight timeline. Starting the conversation early also gives you time to look for other locations as a last resort.
3. Consider Tenant Improvements
You’ve been in your location now for a couple of years. You know what is great and what needs a little TLC. If you’re thinking about making changes to the leased premises, such as renovations or upgrades, negotiate these with your landlord. Tenant improvements can enhance your gym’s functionality and appearance, but they require clear agreements to avoid misunderstandings. You now know that the landlord isn’t fast at addressing issues. So, this is a great time to start adding deadlines on repairs. Alternatively, you might want to add a clause to your new lease that allows you to make necessary repairs and reduce your lease as reimbursement. Has your roof been leaking for a while? The time to resign a lease is a great time force the landlord to finally address the issue.
4. Negotiate Rent Increases
Go back to you lease. Sometimes, the lease will state what your rate increase will be if you extend your lease. Be cautious if it says your rent will increase to Fair Market Value upon resigning. This is especially concerning if there was a recent blow up in the market like we saw coming out of COVID lockdowns. If your lease does not already address rent increases, be prepared to negotiate this aspect. Research market rates for similar properties in your area and approach the negotiation with a clear understanding of what’s reasonable. This is where an agent or broker can help. Remember, the landlord doesn’t want to lose a tenant. Turnover of commercial space is expensive. So, you have negotiating power here.
5. Seek Professional Assistance
Consider engaging a commercial real estate agent or broker to assist you in the negotiation process. Their expertise can provide valuable insights and help you secure the best terms for your business. They will have knowledge about comparable properties in your area. An agent or broker can often help find alternative locations as well just incase you need to move. By cautious, however, of a broker who works for both you and the landlord. Their motivation is not to negotiate a lower base rent. They are typically paid by the landlord based on a percentage of the total rent under the lease. On the other hand, knowing that the landlord typically pays their fees makes it less expensive for you.
6. Understand Your Legal Obligations
Consult with an attorney who specializes in commercial leases to ensure that you fully understand your legal obligations and rights. This can prevent potential legal pitfalls down the road. This is especially true if you didn’t use an attorney when you signed originally. You may have discovered some parts of your lease that you don’t like. For example, a lease that makes it your responsibility to replace the HVAC. Now is the time to address those issues. Additionally, don’t assume that your new lease will be the same as your old one. We review a lot of leases and know what to look for when it comes to gyms.
7. Think Long-Term
Consider your gym’s long-term goals and how the lease aligns with them. Whether you’re planning to expand, relocate, or maintain your current size, your lease should support your business strategy. There is also a lot to consider if you plan to sell your gym in the near future. It might be time to address the Assignment and Subleasing terms of your lease. It might also be a good time to negotiate the end of your personal guarantee. You may want to try to add an exit clause into a new lease just in case you want some freedom to move in a year or two.
Bottom Line
Resigning or extending a commercial lease is a significant decision that can impact your gym’s success. By following these tips and seeking professional guidance, you can navigate this process with confidence and secure a lease that aligns with your business needs.
Remember, every lease is unique, and these tips are general in nature. For personalized advice tailored to your specific situation, reach out to us. We are here to help you navigate these complex areas of the law.
