Did You Read Your Lease Before Or After Your Signature Ink Dried?
Most purchasers of coin laundries do not spend much time reading the fine print of their proposed lease, assuming that since it is a printed form and entitled "Standard Lease," the provisions must be reasonable.
The provisions of your lease are likely to be considered reasonable only if viewed through the eyes of the landlord. If you are the tenant, the term "reasonable" may not be in your vocabulary when the review of a particular provision becomes important. Adjectives such as "one-sided," "onerous," or "draconian," or expressions of profanity are more likely to come to mind!
Tenants do not generally gather together and form an association for the purpose of preparing and printing a "Standard Lease." Landlords, on the other hand, frequently do. Always assume, therefore, that your so-called "Standard Lease" has been prepared by an association funded by landlords or an attorney paid by the landlord. As a consequence, your lease will be slanted toward the concerns of the landlord rather than you as a tenant.
Remember, however, that although the lease presented to you is a printed document, many of the provisions will nonetheless be subject to negotiation. The landlord wants your money as much as you want his location.
What will you do if you encounter a problem with the payment of rent and the lease contains a sizeable late charge which is imposed after only three days? Many landlords will modify such a provision to impose the late charge after five days, and may reduce the penalty if approached appropriately during negotiations.
Another problem that might be addressed during lease negotiations is the problem of tenant or employee parking within a shopping center parking area. The idea of a fast-food outlet within the shopping center near your coin laundry may seem appealing; however, if delivery service vehicles monopolize the parking spaces, your customers may look for your competitorís location!
A careful review of common area maintenance expenses (CAM) to which you must contribute a proportionate share is essential. CAM is the most significant economic cost in a lease to a tenant, aside from base rent. CAM most typically includes the following:
- Maintaining and repairing common areas such as parking lots;
- Janitorial service;
- Maintaining the building structure, heating and air conditioning systems;
- Capital improvements; and
- Management and administration.
Since you have little to say in terms of who the landlord retains for these services, a review of past CAM is nothing less than mandatory before entering into a coin laundry lease. You may discover that the landlord hired his out-of-work brother-in-law to water the common area landscaping at $900 per month! Or an amount equivalent to 15% of your rent is deemed a management fee although the landlordís wife only allocates 30 minutes each month to this activity!
In your review of the proposed lease, be sure that an audit clause is included. Many commercial printed forms do not include such a provision. Absent an audit clause in the lease, you will probably not have any enforceable right to an audit without initiating litigation in order to obtain access to the landlordís records, since there does not appear to be any authority providing a tenant with an implied right to audit the landlordís books and records.
Audit provisions typically provide that after the audit is concluded, the tenant shall pay all costs unless the size of the error found exceeds a specified threshold, such as 5%. Determine whether the threshold error sum is calculated as a percentage of the tenantís share of CAM or as a percentage of total CAM for the building or shopping center. Calculate the dollar amount of the error you must demonstrate in order to recover the cost of the audit. Determine the target areas for review. If you feel comfortable with your chances, request the audit.
Most purchasers of coin laundries donít contemplate issues to be confronted in the sale of their coin laundry the day they sign the lease and commence operation. Big mistake! In negotiating the lease, keep in mind that you will, at some point, likely sell the business. Will you have sufficient time left on the lease to make the business attractive to a new purchaser? If you have not negotiated adequate options to extend the lease, that out-of-work brother-in-law of the landlord may acquire your business at the end of the lease term because the remaining time on the lease will then be insufficient to appeal to a new purchaser!
Some option provisions set forth the precise amount of rent to be charged during the option period. Other clauses set forth formulas for calculating rent, including, at the very least, a consumer price index adjustment. Some leases merely state that the rent required to be paid during the option period shall be the then "fair market rental value" without further definition.
The greater the ambiguity in defining the rental charge for an option period, the greater the likelihood that grief and anguish will result when it comes time to determine the rental charge.
The moral of the story? Read your lease, preferably with the aid of an attorney, before you sign it. Addressing these issues after the signature ink has dried may prove to be too late and ultimately very costly for you!