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Dance teachers say that there are only two requirements for dance – music and a floor. When operating a commercial dance studio, finding suitable floor space can be difficult. We look at whether a lease or licence to occupy the premises is more suitable for your business’ needs.
Leasing a Dance Studio
If you are the only business operating from the premises, you will need a lease. Typically, you will require a commercial lease, however, this depends on your state. For instance, you may need a retail lease if your studio is in Victoria (although note that retail lease legislation is state-based and the definition of ‘retail’ differs state to state).
You should also consider local council regulations. Depending on the types of lessons you offer, the council may classify your studio as a dance school, fitness studio, sporting facility or education provider. This will be more straightforward if you are buying an existing dance studio with an existing lease. If, however, you are opening a new studio, speak with your local council before signing the lease.
There are a number of important points to consider when reviewing your lease which we set out below.
Make Good Provisions
Make good clauses discuss how the tenant should leave the property at the end of the lease term. It is important that you understand what the landlord requires when you decide to leave the premises. Generally, you would need to return the premises to its original state, so it’s a good idea to make sure the landlord prepares and signs the condition report before the lease starts.
Negotiating the Terms of the Lease
Landlords typically prepare the initial draft of the lease. Use this opportunity to negotiate the terms – after all, the floor is one of the most critical components of your dance studio, and you should take steps to protect your interests.
Read through the lease and understand how it will impact your business. You may decide to suggest changes, for instance:
- how rent will increase,
- when rent will increase,
- whether to include an option to renew,
- who is responsible for costs, and
- termination and exit clauses.
Heads of Agreement
A heads of agreement (HoA) is a shorter document setting out the terms you and the landlord have agreed on, such as:
- rent,
- length of the lease,
- any options to renew, and
- start and end dates.
There is no requirement for parties to enter into a HoA, however, it can help to ensure parties are on the same page before drafting the full lease. A lawyer will use the HoA as the framework to prepare the lease and can record any interests negotiated so far. Although you should not mistake this for the full lease, a HoA’s terms can bind parties so take care before signing the lease.
Signing the Lease
Once you sign the lease, you are bound by its terms, and you should understand your rights and obligations as a tenant. It’s difficult to break the lease after you have signed it.
Security Deposits
Almost every commercial lease will require the tenant (i.e. you) to provide the landlord with a bank guarantee or security deposit upon signing. Security deposits are usually a cash bond to the value of three months rent that the landlord will hold on to.
Licensing Floorspace
Dance studios can also licence floorspace. Licences differ from leases in that a licence holder does not have ‘exclusive possession’ of the premises. For instance, a community hall that hires out its space for afternoon classes with school children is a licensed premises. A licence does not provide the licensee with the same property rights as a lease, however, it’s a more flexible option so studios can run different classes in various locations, and sometimes terminate the licence more expediently.
Continue reading this article below the formKey Takeaways
The type of agreement you need for your dance studio depends on several factors, including:
- how and when you intend to use the space,
- if you are going to share the space with other people and businesses,
- which state your studio is located, and
- local council regulations.
Make sure that you have the appropriate lease or licence in place from the outset. This agreement will govern the relationship between you and your landlord and set out your rights as the tenant. If you need assistance reviewing your commercial lease or licence agreement for your dance studio, get in touch with our commercial leasing lawyers on 1300 544 755.
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