How to Open a Yoga Studio, Part 4: Researching Your Lease

So you’ve found the right location and it’s time to come to terms. Do the words "rent abatement," "build-out allowance," or "Good Guy" clause mean anything to you? If not, read on for our brief primer on lease negotiation.

By Constance Loizos

You’ve written a business plan, named your baby, and scouted out the perfect location for your studio. Your next step is to educate yourself about the commercial rental market in your community. Several Web sites, including www.tenantwise.com and www.edwardwarren.com, offer searchable databases and reports about current market conditions, which are almost always in flux. A little research goes a long way when it comes down to negotiating terms.

Once you’ve done some homework, hit the streets. Finding out how much landlords are charging tenants in the neighborhood you’re eyeing is the fastest way to find out what spaces are really worth. Here are some factors you should investigate:

• The rent your potential neighbors are paying.
• The rate of rent abatement in the area. Rent abatement is the withholding of rent when a landlord fails to keep basics such as the electrical, plumbing, sanitary, heating, and ventilation systems up and running.
• The terms of the lease (which can vary wildly depending on the location of the space and the duration of the lease).
• Whether you can wangle any build-out allowances. A build-out allowance is essentially a fixed amount the building owner gives a tenant to design the space. Your chances of receiving a build-out allowance are far better if you sign a longer lease, if the space you’re investigating has been vacant for a while, or if you are going to rent large quantities of space. Not surprisingly, someone wanting to lease 500 square feet is in a very different position than someone looking for 5,000 square feet.

Getting a sense of the terms your neighbors have set will help prepare you to develop your own wish list for your lease.

Once you do get to the negotiating table, keep a few possibilities in mind, such as whether you can lease the space as is, which can reduce your costs. Because the yoga business is seasonal, with enrollment sometimes falling off slightly for two or three months in summer, you can also try to negotiate paying more at certain times of the year and less during quieter periods.

Another tool to have up your sleeve is the "Good Guy" clause, which is a limitation of your personal guarantee of the rent. If you include a "Good Guy" clause, you guarantee to pay the rent only as long as you’re occupying the premises. If you have to leave your studio, even before the lease ends, you will have no obligation to the owner to continue paying rent, as long as you vacate the premises. The "Good Guy" clause works because every landlord’s biggest concern is that a tenant will stop paying rent but remain in the space, preventing her from leasing the property to someone else.

Finally, keep an eye out for your lease’s escalation clause, which determines the percentage by which your rent will increase each year. Verify that the escalation percentage is fair by checking it against the consumer price index. If you allow your landlord to determine the escalation factor at a later date, and you happen not to have the world’s most scrupulous landlord, you may regret it.

If you really want to slash 20 to 30 percent off the landlord’s asking rent, employ an expert to assist you. The mere introduction of a broker, lawyer, or consultant puts landlords on notice that you’re aware of market conditions and will be professionally represented in all aspects of the upcoming negotiation.

If you can’t afford a representative, don’t be afraid to take the bull by the horns yourself. The key, observes Jonathan Fields, owner of Sonic Yoga in Manhattan, is to ask for what you want in a way that a building owner will appreciate. "If you have a vision, plan intelligently, and impress the landlord as being serious, he or she is likely to trust you and be more flexible with you."

Constance Loizos is a San Francisco-based writer whose work has appeared in more than a dozen magazines, including Inc., Fast Company, and San Francisco Magazine. She is currently writing a book about businesswomen.

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