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So you want to open a yoga studio and therefore you need to negotiate a commercial yoga studio lease. As a yoga studio is a unique use, there are unique challenges to be dealt with in the lease negotiation with the landlord.
Here are some of the most important issues to consider.
Obviously it would not be good business for a landlord to have two yoga studios in the same building.
But what about any ancillary services you may want to offer?
For example, what if you want to open or license a juice bar within your studio? Your lease may restrict food uses.
What if you want to sublet a portion of your space to a chiropractor, naturopath, massage therapist, physiotherapist, psychotherapist or any other health care professionals?
You may even want to negotiate for the exclusion of any other fitness related uses. What if a gym opens up in the same complex and they offer yoga? You would certainly want your exclusivity clause to be as broad as possible.
Landlords have the ability to relocate tenants embedded into their standard lease templates.
This allows them to shuffle tenants around to accommodate for the growth of some tenants.
The problem with a yoga studio is that the space is much more specific to the needs of the customers. Having it relocated within the building or complex could be extremely detrimental for business.
Therefore we would recommend that a clause be inserted into the letter of intent or offer to lease that explicitly states that the lease will not have a landlord right to relocate the premises.
Something like this:
The lease shall not contain a landlord's right or a provision to relocate the Premises.
A normal lease has two months...either first and last, or first and security deposit. In some rare cases landlords are willing to agree to no deposit, but that is normally only if they are extremely desperate and the tenant is also extremely creditworthy.
Aim for two months deposit, and try to ensure it applies to first and last months rent, as opposed to first and security deposit.
Although a personal guarantee may be insisted upon by some landlords, the purpose of having companies is to avoid personal liability.
If the landlord is insisting on a personal guarantee, it might be wise to just walk away from the deal, or come up with some creative ways around the guarantee.
One solution is to provide a hefty rental deposit. While first and last months rent is normal, a beefed up rental deposit may be something like first month, last month and 2-3 more months. More on how to navigate a personal guarantee in a yoga studio lease here.
It would then be advisable to have those extra months worth of rent start to apply during the term...for example, month 6, month 13, month 18, etc.
You could also provide a letter of credit, which freezes money in your bank account. If you go this route, we would recommend that it decline over time, just like the deposit example above.
The theme here is that the longer you are in the yoga studio paying rent, the more of a return the landlord has received and the less of your money he should be holding on to.
A lot will depend on the landlord?s risk on the deal. Is he paying a real estate brokerage commission? Is he spending money on the yoga studio to improve it? Is he providing a cash or tenant inducement allowance so you can improve the space?
If you agree to spend your own money and there are no real estate commissions, the landlord's risk is minimized and therefore your odds of not having to sign a personal guarantee are maximized.
If you are just starting a yoga studio for the first time, it would be wise to grow the membership as much as possible before launching. This will put the landlord a bit more at ease that you will have the ability to pay the rent.
This is a catch 22 however, since not many people will sign up for your yoga studio before you have secured a location.
You will need to sell the landlord on who you are, your background, and provide evidence that you have enough of a following and expertise that you will be able to grow a healthy customer base.
You will also need to provide a solid business plan that shows that you have done your research on the viability for a yoga studio in this location. What do the demographics look like? What about the psychographics of the people nearby? Purchasing power? What does the competition look like? Do you have a solid pricing strategy?
If you are a start up, many landlords will not want to even bother with the risk of leasing the space to you. So you have to ensure that you sell yourself and why it is a wise investment for the landlord.
Most commercial leases have a makegood provision, which is the tenant?s obligation to restore the premises back to base building condition at the end of the lease term.
Although yoga studios are primarily open concept, the demolition costs could add up with respect to taking out the changerooms, lockers and the flooring.
Although it is common to have such a clause in the lease, we would suggest trying to remove this clause before you sign the lease and start your tenant fixturing period - when you have negotiating leverage.
Ensure the lease is very clear on the business hours you can operate and the range of uses that are covered.
For instance, is the landlord aware of hot yoga? Would performing hot yoga during the day affect other tenants in the building or complex? What about other forms of yoga such as naked yoga?
Also be sure that your use will not elicit any accessibility issues, or if they do, it will be at the landlord's expense. You would not want to be responsible for handicapped accessible ramps around the building...you want to ensure that the landlord has a compliance with laws clause embedded within the lease and that such costs are at the landlord's expense.
It would be wise to evaluate the strategies and successes of other yoga studios. Do the highly exposed and well located yoga studios do well?
What about the yoga locations that are hard to find? Are they successful? Is their success due to word of mouth, culture, or through digital success?
You can find out the local Google search volume through keywords planner. If there are few competitors and people tend to find yoga studios through web searches, then you may not have to pay for prime real estate.
On the other hand, customers may want to visit a prominent location, and word of mouth is easier to spread when people can talk about a well known and visible property.
Whether well located or not, make sure to know what your signage rights are so that people can easily find you once they are near your location.
Some leases have extremely ambiguous wording with respect to tenants signage rights, and in some extreme cases tenants are disappointed to find out they do not get access to the general podium sign for the complex.
As your location becomes such an important part of your business, you should try to negotiate for two rights to renew the lease.
For instance, a 5 year lease with two rights to renew at 5 years each, or a 10 year term with two rights for 5 years each. If you are more comfortable with shorter terms then perhaps two terms of three years each is more appropriate.
The renewal rights can either be fixed or at fair market rates.
Does the building have up to date heating, ventilating and air conditioning? It would be wise to have an HVAC professional help evaluate if the building has proper ventilating for your use. You can find out more about this at the ASHRAE website.
On the flip side, if you want to offer hot yoga, is that something that the building is capable of providing during the months where no other tenants in the building are using heat?
Tenants have a useable area (the square footage within their premises), and a rentable area (what a tenant actually pays rent on). The difference between the two is the amount of common area assigned to a suite.
Normal "gross up" between useable and rentable areas is about 15%. Be sure to ask your landlord what the building gross up factor is.
Have your insurance provider review the insurance clause within the lease. Coverage normally ranges from $2M - $5M. You can find out more information on insurance here.
Still stuck? Find out how we can help. We would be happy to provide you with a yoga studio lease review.