In Short
-
Lease Terms and Extensions: Ensure the lease duration and any renewal options align with your gym’s growth plans.
-
Permitted Use Clause: Confirm the lease permits all intended services, such as fitness classes, wellness offerings, and retail sales.
-
Rent and Maintenance: Understand rent escalation methods (e.g., CPI adjustments or market reviews) and clarify responsibilities for maintenance and fit-out obligations.
Tips for Businesses
Before signing a gym lease, verify that the premises are zoned appropriately and that the lease terms support your business model. Negotiate clear provisions for rent-free periods, fit-out timelines, and maintenance duties. Seek legal advice to ensure the lease accommodates future expansions or service additions.
Entering into a commercial lease for a gym can be a complex process, and it is crucial to fully understand the terms of the agreement before signing. Several key factors must be considered to ensure your business runs smoothly and avoids unexpected costs or disputes. This article explores the most important considerations when entering into a commercial lease for a gym. It provides practical guidance for new gym owners to protect their interests and avoid common pitfalls.
The Term of the Lease and Options to Extend
The two key considerations for the term of a lease are:
1. Initial Term
This is the timeframe in which you must stay on site and pay rent. A brief initial term lets you assess if the space suits your needs, but it is also essential to think about your gym’s long-term growth strategy. If you have discovered a space that meets your size and location requirements, you might consider locking in a longer lease with available options.
2. Option to Extend
Negotiating lease option terms can be beneficial for tenants. At the end of the initial term, if an option period is available, a tenant may exercise the renewal option (if compliant with notice requirements) under the same terms and usually at the current market rent. The advantage of options is that they offer tenants the flexibility to choose whether to remain in the premises for an additional term. However, once a tenant exercises the renewal option, they are legally bound by the lease for that option period.
This guide will help you to understand your options when you purchase a business with leased premises.
The Permitted Use of the Lease
The ‘permitted use’ clause outlines the purposes for which the premises can be utilised, making it crucial to get this right. If a tenant begins using the premises for a purpose not covered in the ‘permitted use’ clause, the landlord may allege a breach of the lease.
For instance, as a gym owner, you might want to offer additional health and wellness services or sell related products. If this is the case, it is essential to specify these uses in your permitted use to ensure they are included. A leasing lawyer can help determine the precise wording suitable for the commercial lease, allowing for future offerings. Additionally, you must investigate and obtain any necessary council or other authority approvals to operate the premises as a gym. The landlord will not be responsible for this.
Continue reading this article below the formYour Rent Can Increase
New business owners frequently assume that their rent will remain consistent for the entire lease term. However, in commercial leases, it is rare for rent to stay fixed for five years or more, and even for just one year. A lease usually includes a rent increase provision, such as:
- a predetermined rate increase;
- an adjustment based on the Consumer Price Index (CPI); or
- a market review by a property valuer, real estate agent, or landlord.
A market review allows landlords to adjust rent to reflect the local market rate compared to similar tenancies. This occurs at the start of an option term. Tenants face risks in the current market rent review process as it may lead to significant rent increases, often requiring decisions before knowing the new rent. However, state retail legislation may provide additional protections during reviews if your lease is under the retail category. If not covered, negotiating terms might still be possible.
As a tenant, aiming for as much certainty as possible regarding rent increases – whether they are fixed or CPI-related – will benefit you. Preparing for these potential rent increases is crucial for a new gym owner when launching a business.
Site Maintenance and Renovations of the Premises
As a gym tenant, understand your lease’s maintenance responsibilities. Typically, tenants must maintain the premises (excluding structural work and normal wear) and service any equipment they own. If the landlord owns equipment like essential air conditioning, clarify that they cover replacement costs at the end of its lifespan. You will also be responsible for repairing and replacing any gym equipment you bring into the space.
Unless you are leasing premises already equipped as a gym, you will likely need to undertake fitout works to operate the gym and incorporate your branding. Your lease will include specific fit-out terms that prohibit changes to your premises without the landlord’s consent. It is crucial to assess what works are needed and to obtain all necessary approvals for your initial fitout from the landlord and any other authority before proceeding with the lease. This is particularly important for gyms, where there is a higher risk of causing damage to the premises if it is not properly designed to withstand the heavy equipment and usage.
Any tenant wishing to renovate or fit out a premises should pay special attention to the key dates below.
Handover Date
This date refers to when the landlord will provide the premises to your business. On this day, the landlord will permit you to take possession of the premises and begin your fitout works prior to the Commencement Date. Typically, the tenant does not pay rent during this period and occupies the premises under a licence agreement.
Fitout Period
This duration outlines the time you will spend fitting out the premises. Typically, the fitout period considers the Commencement Date, and some leases allow the tenant to start trading once the fitout period ends.
Commencement Date
This date marks the beginning of your lease and financial obligations. If you do not complete your fitout works before the Commencement Date, you may still be required to pay rent.
Rent-Free Period
Another consideration is whether there is a rent-free period involved. You will want to note these dates so that you are aware of when you are liable to pay rent.
Key Takeaways
Entering into a commercial lease for a gym requires careful consideration of several key factors, from the lease term and rent increases to site maintenance and renovations. Understanding your obligations and rights will help you avoid unnecessary costs and ensure your business operates smoothly.
If you need assistance in negotiating leases as a new gym owner, our experienced leasing lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
Frequently Asked Questions
What should I consider when negotiating the term of my gym lease?
The initial term of the lease is crucial as it determines how long you are obligated to stay in the premises. It is important to assess whether the location and size are suitable for your gym’s growth. Additionally, negotiating an option to extend the lease can offer flexibility in case you decide to stay longer.
Am I responsible for maintaining the gym’s equipment and the premises?
Generally, tenants are responsible for maintaining the premises in good condition, excluding structural repairs. You will likely be responsible for servicing and replacing any gym equipment you bring in. If the landlord owns any essential equipment (e.g., air conditioning), you should ensure that their responsibilities for maintenance are clearly outlined in the lease.
We appreciate your feedback – your submission has been successfully received.
