Advanced Lease Negotiating for Laundromats
- You're dealing with an older building and some of the infrastructure may be worn, outdated and need replacement. Try to include a provision in your lease that states any costs needed for sewer fees, gas or electrical upgrades will be the sole responsibility of the landlord since he's leasing you a "Laundromat." Building codes probably changed or been updated. You may also have some old design concepts such as underground water and electric connections that may need replacing.
- Before negotiating, you should spend time at the local building departments and discuss the city regulations. One item that may cause you trouble is that when a business has been closed for 90 days or more, some cities require a new owner to obtain and pay for new sewer impact fees and building permits. Cities can claim the rights have been abandoned if the store has been closed for any period of time.
- You need to verify with the local building department if the store is still zoned for a Laundromat. Sometimes changes have been made to zoning laws and you may not be able to obtain a certificate of occupancy for a Laundromat.
- If you are building a new store or embarking on a major remodel, it is customary to ask for some months of free rent from the landlord. You should base your request on the fact that your major investment will result in a long-term tenant for the landlord and that the volume of customer traffic will add to the surrounding tenants as a major draw to the center. The cost should be apportioned to those other beneficiaries of your “new” store.
- If you do a major remodel, you should be aware that the city might require a full set of architect and engineering plans. This can cost over five thousand to twenty thousand dollars for a skilled architect and engineer to develop and may take up to three months to get through plan check.
- Cost of living increases by the CPI is your best option. Use Excel to calculate what your lease will increase over the full term of the lease you are signing. Avoid options dependent under “market rate” provisions since a cost-of-living increase should keep both tenant and landlord on equal positions throughout the term and options of the lease. The right to exercise the options can be a trouble spot. Are the options subject to negotiation? Are they really only first right of refusal options?
- Are the options identified as personal to the original tenant or can they be assigned to a potential future owner? This is often another trick used by some Landlords to increase their rent and devaluing your investment (ability to sell) since the options cannot be transferred to another.
- What about contingent liability? Will you be obligated under the lease for the entire term even if you assign the lease to another? You must stipulate now under what conditions you can be released from contingent liability. (When you assign a lease, you give up privity of estate but not privity of contract.) People are surprised about their continued obligations after an assignment.
- You may begin your lease with a set Net/Net/Net or Common Area Maintenance payment but is it limited to a specific amount for the future? You need to cap the NNN and CAM charges now or they could spiral out of control. Maybe have them increase at the same CPI increases.
- What is your obligation regarding repairs, replacement and other prorated charges? A 25-year-old building may need updates to roof, walls, glass, doors, painting and parking lots. Can you be surcharged under the lease for common area improvements?
- Is the landlord willing to warranty ADA compliance liability on any claim for violations occurring outside the interior of your rental space? Business owners and landlords can both be sued for exterior violations of ADA. You use the parking for your business and the theory is you have an obligation to inspect your premises, parking and entrance thereto are maintained compliance with ADA laws.
- What about mold remediation issues? Are you obligated to pay for remediation costs if you discover them during a remodel? A 25-year-old Laundromat location could face this problem.
- If you buy and existing older store for remodel, especially one built during the top load era, you may need upgrades to the concrete floor if you're going to install hard mount washers. Speed Queen, Huebsch and Dexter are popular hard mount brands that reveal in their installation instructions the depth of concrete needed to bolt down their washers for safety reasons. Most concrete flooring in older building is approximately only four inches thick. Concrete grows stronger over time but then enters a state where is begins to weaken. Discover the age of the building and it the floor is original. Anything over 85 years should be tested for strength before tying hard mount washers to these floors.
- What are your obligations if the property is sold? Huge increases in NNN charges in many areas of the country are certain if the property is sold (in SoCal, Prop 13 protections are removed upon sale) and reassessed to current tax rates. You can negotiate a cap on increases now.
- Check with local police departments to see the gang and criminal activity around this location. Certain areas of many urban areas are very high crime and gang risks that your future customers may tend to avoid.
- Review the demographics favorable to a Laundromat for the area. Have a professional advisor or consultant discuss the major positives and negatives of demographic reports necessary for high profit locations. Often distributors and equipment sales people will not provide complete demographic studies in their sales presentations.
- Check out the businesses that will be your neighbors. Do they cater to clients who are long term parking customers, such as exercise gyms, nail and hair salons? Your best neighboring businesses will have few long-term parking customers. A 7-11 or convenience store is an example of a good neighbor.
- Interview the other tenants in your complex, if any, and ask about the landlord, the shopping center in general, and how the previous Laundromat owner of existing stores operated their business. If you can find the name and number of any previous owner, call and talk to them about the location.
- You might also wonder why none of the companies that take stores to remodel and resell have not already leased this closed store. Do you really think you’re the first entity that learned of this store availability? Make sure these folks don't know something you don’t about the location, such as a new jumbo store being planned in the marketing area of this location
- This is just a portion of the items you might want to consider before entering into a lease. Hope this helps a little bit. My best advice is don’t try to negotiate a lease without a professional advisor, consultant or laundromat experienced attorney.
