Feb 26, 2015
Your premises are both one of the biggest assets and commitments in your fitness business. How do you get them right?
Position/location: Check. Size: Check. Layout: Check. Commencing rent: Check. Potential: Check!
Where do I sign?
We all get excited about getting something new, no matter how young, old or experienced we are in what we do. We don’t always get it right, but we can generally cover most one-off mistakes (as long as we learn from them).
However, given the value to our business on the one hand, and the ongoing typically large financial commitment of most leases of premises on the other hand, entering into a lease is likely to be one of the biggest commitments you make in relation to your fitness business. It is therefore important to get it right.
In this fourth instalment of ‘Legally fit’, we look at some of the issues you should consider before you enter into a letter of offer or lease for, or take possession of, your new premises. Similar issues also apply if you are buying your premises. To read previous articles in this series search ‘Legally fit’ here.
Retail lease
Most (but not all) leases for fitness facilities will be what are known as a ‘retail lease’ or a ‘retail shop lease’. A ‘retail lease’ is a type of commercial lease relating to premises which (meet certain requirements and) are used for the provision of retail goods or services to the general public, such as fitness services.
Each State and Territory has laws protecting retail lease tenants, but the laws vary among them and some also place requirements on retail tenants, which if not followed can potentially have adverse consequences for the tenant. It is important, therefore, to familarise yourself with the retail leasing laws and requirements in your State or Territory if you propose to enter into a retail lease.
Letters of offer
Prospective tenants will sometimes be presented with a letter of offer to lease premises as a precursor to entering into a formal lease. However, such a letter of offer could potentially constitute a legally binding agreement to lease the premises, and it is therefore important that the letter of offer addresses, or is expressed to be, conditional on you being satisfied with each of the things referred to below.
It is also important that if the landlord has said it will do something, or if there is something that you specifically require, those things are expressly stated in the lease. It is better to be clear about such requests in the lease, rather than have a distracting and potentially expensive and unsuccessful argument at a later stage about what was intended.
Use of premises
Imagine if you planned to open a 24/7 fitness facility, but after entering into a lease found out that you weren’t permitted to operate 24/7?
It is important that the lease specifically allows you to use, and do the things in and to, the premises in the manner in which you intend. This includes things such as your specific operations, proposed fit out and signage.
It is also a common misconception that if a lease says you can do something, that is the only permission you need. However, local council or shopping centre requirements may not allow the premises to be used in a particular manner at all, or at least not without obtaining a permit or other authorisation to do so. It is therefore important that you also check to ensure you can do all the things you intend (and obtain any required permits or authorisations) before entering into a lease (or taking possession or doing any works to the premises).
Alternatively, if the landlord agrees, you could make the commencement of the lease conditional on obtaining any required permits and authorisations, but you should also bear in mind what will happen if you take possession or carry out works before that time and you are not able to obtain the required permits or authorisations.
Rent and outgoings
It is not uncommon to focus on the commencing rent and any rent-free periods.
You should also make sure the lease clearly indicates what is included in the rent, what outgoings you are responsible to pay or reimburse the landlord for, and how those things are adjusted during the term of the lease. For instance, how is the rent reviewed, who is responsible for maintaining the air conditioning and do you have to contribute to any common area cleaning?
If you are not sure exactly how any of those things work, or what is or is not covered, you should seek specific advice and ensure that amendments are made to the lease to ensure they are quite clear.
Landlord and tenant works
How your premises will look, and the works required to achieve that, are important considerations. When the works are to be done, by whom and at whose cost, are also important matters to be clear about in the lease.
It is also just as important to consider what obligations you have at the end of the lease. Do you have to remove all works which were constructed at the beginning of the lease, even if they were constructed by the landlord?
Redevelopment
The property market is forever changing, and many landlords have plans to redevelop their properties at some time in the future. What would happen to your business if, after you have spent considerable time, energy and money establishing your business in your new premises, the landlord gave notice to terminate the lease under a redevelopment clause well before the end of the lease?
Other rights and obligations
The above are just some of the myriad issues which should be considered and properly addressed before entering into a lease, particularly given that this is something you will have to live with for a considerable period of time. Leases are also typically not drafted in the plainest of English, and what you think a clause may mean may have a completely different meaning from a legal point of view. It is therefore important that if you are not 100 per cent sure what something means, or whether something is covered, you seek appropriate advice and clarification in the lease.
| Any questions? |
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| If you have a legal question about running a fitness business, email editor@fitnessnetwork.com.au and your question may be addressed in the next issue. |
This article has provided a general outline only of some of the issues to consider before entering into an offer to lease, lease or entering into possession of premises. However, before doing so, legal and financial advice should be obtained in relation to the specific details of the proposed lease.
Leon Ponte, Juris Doctor (Law) is the founding principal of Ponte Earle – Business Lawyers for Business® and is in a select group of approximately only 110 lawyers accredited as specialists in business law by the Law Institute of Victoria. He has a strong personal interest in the fitness industry, holding Certificates III and IV, and has provided advice to fitness facilities, personal trainers and suppliers to the industry.