Leasing and Landlords

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The following documents can be copied and pasted into your word processor and easily modified to meet your specific needs. They should be used as a guide and modified to meet your company policies and procedures, including the laws in your state or country. If you feel uncomfortable making modifications to these documents and forms, please seek the advice of an attorney or accountant. 

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Advantage Landlord

Believe it! The landlord always has the upper hand, and without professional help, you could be asking for trouble without knowing it. There are five times in your business life when you may need us to get involved with your landlord. After working with landlords across the country for over thirty years, we have developed several successful strategies and techniques that address the four examples below.

1. You are ready to sign a lease for the first time. Leases favor the landlord, and your lawyer will check only the legality of the lease, making sure that the legal terms are correct, etc. And that’s what he’s supposed to do. But you can do better, a lot better. We will show you how to negotiate the best lease terms, or we can do it for you. We have been providing this service for other small business owners for over 30 years, and we know what we are doing. If we don’t save you money and reduce your risk, then you don’t pay us. That’s right. We have 100% money-back guarantee! In most cases, we have been able to save our clients from $15,000 to $30,000 on a standard 6500 square feet lease. What could you do with an extra $15,000 to $30,000? 

2. Your lease is up for renewal. Instead of just signing and agreeing 100% to the landlord's terms as written in the original lease, why not try to save money? Once again, we will show you how to negotiate the best lease terms, or we can do it for you. Don’t forget, in 1981 you could buy a home for $89,000, a new car for $8,000, and computers weren’t even for sale to the average consumer. Times have changed. Let us show you how to capitalize on the changing times. None of us could have even imagined 10 to 20 years ago that rents would be where they are today.

3. Your landlord is not performing. Has your landlord or property manager let you down? Have repairs and maintenance been neglected around the building or shopping center? Once again, we can come to your rescue. While showing you how to successfully negotiate with your landlord to fix roof leaks, parking lights, potholes, and other items the landlord is most likely responsible for, we’ll put your mind at ease with our proven strategies and techniques.

4. Challenging business climate? Has the economy forced you to be late on your payments? Is your landlord growing impatient and preparing to evict you? Once again, we can come to your rescue. While showing you how to successfully negotiate with your landlord, or doing it for you, we’ll put your mind at ease with our proven techniques.

5. You're contemplating closing your business and throwing in the towel! You have a huge liability and exposure on the remaining term of your lease. We’ll show you how to negotiate full closure of your business and limit your risk and exposure, or we can do it for you. We know of many creative ways to help you come out a winner and, yes, you’ll be left standing on your own two feet. You’ve heard of the nightmare stories, where tenants are required to continue to pay rent, even when they’re not occupying the space. Well, don’t be fooled by your landlord; let us put our 40 years of experience to work for you.

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Leasing Strategies

If you're going to try to negotiate or renegotiate your own lease, be prepared and start the process months ahead of time.

For new businesses or locations, we strongly recommend that you start the site selection process at least six months in advance. Two months for site selection and negotiations, one month to finalize the formal lease agreement, two months for the store build-out, and one month as a cushion to deal with the unexpected. 

For lease renewals, we recommend that you start at least 12 months in advance. If you can’t negotiate a good deal on a renewal in the first few months, you can still exercise your option to renew or start the relocation process. 

If going through this process makes you uncomfortable, that’s where FitForms comes in. We are experts at what we do and have been working with landlords across the country for over 30 years. We have developed several successful strategies and techniques that can save money on your lease as well as reduce your personal exposure. We have the incentive to make sure you succeed. If we don’t save you money, we will refund your payment in full with no questions asked. And in case you’re wondering, during our 30 years of helping fitness centers, this has never happened. 

After we help you negotiate favorable terms with your lease, we always recommend that you consult with your attorney to ensure the document is correct. We are not lawyers, nor do we provide legal advice. Much of the work we do for fitness center owners is consulting and coaching, and by taking advantage of our years of experience you will be assured to come out on top with many more concessions than you could ever have imagined.

Important Points to Remember:

1. In all cases, the landlords have the advantage; they have the preprinted leases, the buildings, and the best lawyers.

2. Match the lease to your business’s needs. If location is important, you’ll want a longer lease - or a shorter one with options to renew.

3. Understand who pays what - such as utilities, repairs, insurance, and even taxes. You may want to pay slightly higher rent for eliminating costs for some of these items.

4. Be aware that your negotiating power is stronger in a market where lots of commercial space is available. 

5. A lease is a legal document and you should completely understand it before signing it.

6. Most attorneys you hire are not trained to negotiate your lease on your behalf, nor are there any real incentives for them to do so. They are excellent at ensuring that the document is legal, but that’s about it. 

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Lease Guarantee

Believe it! The landlord always has the upper hand, and without professional help you could be asking for trouble without knowing it. After dealing with landlords and financial institutions across the country for over thirty years, we have developed several successful techniques and strategies that deal with the personal guarantee dilemma.  Don’t be fooled by your landlord; before you sign on the dotted line, take time to understand what these two words “personal guarantee” mean and what your potential liability could be.

The following document has been designed to do two things: (1) to reduce your personal exposure, and (2) to automatically release your personal guarantee on an agreed to date. 

Important: Just because the landlord says he wants you on the lease personally for the total term of the lease, doesn’t mean you can’t negotiate your personal guarantee for a shorter period than the lease term. Give it a try and you might be surprised.

Furthermore, most landlords want you to write a letter to have your personal guarantee removed, but who’s to say that he/she will take you off lease when you put your request in writing. By including the word “automatically” in the document, your name will be removed without any notification at all.

The following document should be used as a guide and modified to meet the laws in your state or country. As laws vary from state to state and country to country, and are constantly changing, you will need to read through the document in its entirety and make the necessary changes as required by federal, state, and local laws. Much of this information is available to you by doing a simple search on the Internet. However, if you feel uncomfortable doing the research yourself, please seek the advice of an attorney or real estate professional.

Remember: Most attorneys you hire are not trained to negotiate your lease on your behalf, nor are there any real incentives for them to do so. They are excellent at ensuring that the document is legal, but that’s about it.

EXHIBIT "A"

GUARANTEE OF LEASE

In consideration of the leasing of the premises located at [Address] to [Your Company] (Lessee), under that certain Lease by and between the Lessee and [Landlord] (Lessor), dated [Lease Date], a copy of which is attached hereto, [Guarantor Corporation or Individual] absolutely guarantees, if default shall at any time be made by Lessee, the payments of the rent due under said Lease.

This Guarantee is in addition to such other security as Lessor now or hereafter may have.  If Lessor has to bring suit to enforce this Guarantee, Lessor shall be entitled reasonable attorney's fees and costs of said suit incurred in prosecuting such a suit should Lessor prevail.

This Guarantee may not be modified, discharged, or terminated orally or in any other manner other than an agreement in writing secured by the Lessor, its successors, or its assignees, and [Your Company].  This Guarantee shall insure to the benefit of the Lessor, its successors, or its assigns.

It is understood and agreed that this Guarantee shall automatically cease to be of any force or effect as of two (2) years from the date hereof.

Executed at [City, State], on the [Number] day of [Month], [Year].

[Your Company]
Authorized Officer(s): _____________________________________________________
Address: _______________________________________________________________
City, State Zip: __________________________________________________________

[Guarantor]
Authorized Officer(s): _____________________________________________________
Address: _______________________________________________________________
City, State Zip: __________________________________________________________

[Lessor]
Authorized Officers: ______________________________________________________
Address: _______________________________________________________________
City, State Zip: _________________________________________________________

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Personal Guarantees (Important - Please read)

Before you sign on the dotted line, take time to understand what these two words mean and what your potential liability could be.

After dealing with landlords and financial institutions across the country for over thirty years, we have developed several successful techniques and strategies that deal with the personal guarantee dilemma. Below you’ll find some basic information to help you understand what this term really means.

What do they mean by “personal?” "Personal" means you: the individual, the owner of the company. It doesn’t mean your dba (doing business as) name; it means you.

What do they mean by “guarantee”? A guarantee (or guaranty) is a promise made by one party to pay the debts or perform the obligations of another party and is usually provided as an inducement for a landlord or a lender to enter into an agreement with the first party. In the case of a company, the guarantor would be a director, shareholder, partner, etc. In the case of an individual, the guarantor would be a spouse or other family member. The word "guarantee" means a "pledge" or "assurance." Therefore, the term "personal guarantee" translates to you providing your own individual pledge or assurance for an obligation.

Potential liability (You Bet!)
Anyone in business who signs a personal guarantee needs to understand that these words mean what they say. So before putting their signature on a personal guarantee, entrepreneurs need to consider very carefully the potential impact of these two words. The scenarios below illustrate real possibilities for you to consider.

Impact Example #1: You sign a lease for an office or retail space and you give your personal guarantee. Several months later, your company can’t pay the rent and goes out of business. If your now defunct company fails to make its rent payment as scheduled in the lease, the landlord can then collect directly from you.

Impact Example #2: You want to lease office or retail space for your newly formed corporation, and the landlord requires a personal guarantee from you on the lease obligation. If the corporation fails to make its payments on time, the landlord can then collect directly from you. This is possible because the person who signs the personal guarantee is like a co-signer on a loan; the landlord will come to this person once it's been determined that the primary borrower cannot meet the financial obligation. This situation could pertain to an equipment lease, a partnership agreement with a person or other firm, a real estate lease with a landlord, or various types of loans.

Impact Example #3: When Randy Smith, owner of (dba) Prime Time Fitness, signed a personal loan guaranty and failed to make the company’s payment on equipment the company leased, he discovered there was no liability protection inherent in the company's organizational structure. He found out the hard way that the dba he filed is essentially a proprietorship with an operating name different from his name. So even though the dba appears on certain contractual documents, that business is still one and the same with Randy Smith.

These examples, in which individuals on behalf of their troubled businesses are required to continue to pay rent or loan obligations even when they're not occupying the leased space or in possession of the loan proceeds lent to them, highlight the necessity of protecting yourself and your family from the impact that one of these agreements can have.

Be prepared! Personal guarantees are very real. Although they are common as a contingent liability, you must know before you sign what to do to protect yourself.

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Commercial Real Estate Terms

We hope you find the following definitions of commercial real estate terms helpful and that you come away with a better understanding of the terminology used in commercial real estate. This is only a partial list; a more complete list is available in our Documents and Forms section under Landlord and Leasing.

Abatement: Often and commonly referred to as "free rent" or "early occupancy" and may occur outside of or in addition to the primary term of the lease.

Build-Out: The interior construction of a tenant's space, whether new construction or the reconfiguration of existing space.

Capital Expenses: Most often defined by reference to generally accepted accounting principles (GAAP), but GAAP does not provide definitive guidance on all possible expenditures. Accountants will often disagree on whether to include certain items.

Design/Build: A system in which a single entity is responsible for both the design and construction. The term can apply to an entire facility or to individual components of the construction to be performed by a subcontractor. Also referred to as “design/construct.”

Escalation Clause: A clause in a lease that provides for the rent to be increased to reflect changes in expenses, such as real estate taxes, operating costs, etc., paid by the landlord. These expense increases may be accomplished by several means, such as fixed periodic increases, increases tied to the Consumer Price Index, or adjustments based on changes in expenses paid by the landlord in relation to a dollar-stop or base-year reference.

Full Service Rent: An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount. (See also Pass Throughs.)

Graduated Lease: A lease, generally long term, that provides that the rent will vary depending upon contingencies, such as a periodic appraisal, the tenant’s gross income, or simply the passage of time.

Guaranty: Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so. Differs from a surety agreement in that there is a separate and distinct contract rather than a joint undertaking with the principal. See also "Guarantor."

HVAC: The acronym for "Heating, Ventilating and Air-Conditioning."

Improvements: In the context of leasing, improvements made to or inside a building. May include any permanent structure or other development, such as a street, sidewalks, utilities, etc. See also “Leasehold Improvements.” See also “Leasehold Improvements” and "Tenant Improvements".

Indirect Costs: Development costs other than material and labor costs that are related to the construction of improvements, including administrative and office expenses, commissions, and architectural, engineering, and financing costs.

Just Compensation: Compensation that is fair to both the owner and the public when property is taken for public use through condemnation (eminent domain). The theory is that in order to be “just,” the property owner should be no richer or poorer than before the taking.

Letter of Intent: A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding." The threshold issue in most litigation concerns letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.

Lien: A claim or encumbrance against property used to secure a debt, charge, or the performance of some act. Includes liens acquired by contract or by operation of law. Note that while all liens are encumbrances, not all encumbrances are liens.

Market Rent: The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business. Indicated by the rents that landlords were willing to accept and tenants were willing to pay in recent lease transactions for comparable space.

Net Lease: A lease in which there is a provision for the tenant to pay, in addition to rent, certain costs associated with the operation of the property. These costs may include property taxes, insurance, repairs, utilities, and maintenance. There are also “NN” (double net) and “NNN” (triple net) leases. The difference between the three is the degree to which the tenant is responsible for operating costs. (See Gross Lease.)

Operating Cost Escalation: Rent adjustment based on external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings.

Operating Expenses: The actual costs - including maintenance, repairs, management, utilities, taxes, and insurance - associated with operating a property.

Percentage Lease: A provision of the lease calling for the landlord to be paid a percentage of the tenant's gross sales as a component of rent. There is usually a base rent amount to which percentage rent is then added. This type of clause is most often found in retail leases.

Quitclaim Deed: A deed operating as a release that is intended to pass any title, interest, or claim that the grantor may have in the property, but not containing any warranty or professing that such title is valid.

Renewal Option: Lease language that provides the means for the tenant to give the landlord notice of intent to renew (extend) the lease.

Shell Space: The interior condition of the tenant's usable square footage when it is without improvements or finishes. While existing improvements and finishes can be removed, returning space in an older building to its "shell" condition, the term most commonly refers to the condition of the usable square footage after completion of the building's shell construction but prior to the build-out of the tenant's space. Shell construction typically denotes the floor, windows, walls, and roof of an enclosed premise and may include some HVAC, electrical, or plumbing improvements but not demising walls or interior space partitioning. In a new multi-tenant building, improvements to common areas such as lobbies, restrooms, and exit corridors may also be included in the shell construction. With a newly constructed office building, there will often be a distinction between improvements above and below the ceiling grid. In a retail project, all or a portion of the floor slab is often installed along with the tenant improvements to better accommodate tenant-specific under-floor plumbing requirements.

Tenant Improvements: Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord. (See Leasehold Improvements and Workletter.)

Unencumbered: Description of title to property that is free of liens and any other encumbrances. Free and clear. (See Encumbrances.)

Variance: Permission for a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship. Special circumstances could include the particular physical surroundings, shape, or topographical condition of the property when compliance would result in a practical difficulty and would deprive the owner of the reasonable use of the property.

Warranty of Possession:  A warranty by the landlord of the legal ability to convey the possession of the premises to tenant; the landlord does not warrant ownership of the land. This is the essence of the landlord’s agreement and the tenant’s obligation to pay rent. The landlord's breaching of this warranty constitutes an actual or constructive eviction. (In older leases, the warranty of possession is the "quiet enjoyment" paragraph. In current leases, "quiet enjoyment" refers to noise in and around the leased premises.)

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Rent Relief Requests and Other Tenant/Landlord Issues

The following information provides a general summary and is for informational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.

As the COVID-19 pandemic continues to disrupt the fitness industry across the globe, relationships between tenants and landlords will be tested. Now that Federal, State, and County mandates are expiring, many businesses are faced with the reality that past due rents must be paid up. It's only a matter of time before you'll be contacted by your landlord. It's our recommendation you make first contact and have open communication about negotiating rents. There are no winners in this situation, so be creative and be ready to negotiate.

Here are some viable alternatives to mitigate the past due rent:

Rent Reduction - You could request the landlord reduce your rent for a portion or all of the term left on the lease. The usual forms of rent reduction are to reduce the base rent, operating expenses, or both.
Rent Deferral - In this case, you would request the landlord defer a portion of your rent, but you would need to make arrangements to repay the rent deferred at a later time, either in a lump sum or by increasing subsequent payments.
Rent Abatement - If you are significantly past due on rent payments, your landlord may agree to forgive a certain amount of the past due rent if you remain current thereafter. Remaining current might mean requesting a lower base rent until you get back up to speed.
Loan Conversion - Rather than abating past due rent, your landlord may agree to convert the past due rent into a loan payable over time. The tenant would, however, continue to pay the current rent. The loan is then evidenced by a promissory note that is cross-defaulted with the lease. If possible, avoid giving any personal guarantees.
Rent Deposit - If the landlord holds a deposit, you could request this amount be credited against your current obligations. However, expect your landlord to request that you fully replenish your deposit at a later date.

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Rent Relief Letter - Landlord

Dear [Landlord],

Thank you for taking the time out of your busy schedule to talk with me.  As suggested, I have decided to write to you and explain what has been taking place over the past year or so at [XYZ Gym and Racquet].

As you are aware, the economy is at an all-time low and the current state of the economy has significantly impacted our business model along with other businesses in the surrounding area. Consumer confidence and discretionary income have significantly eroded due primarily to the sub-prime mortgage crisis, and the state of the economy.

Faced with these economic pressures, consumers have significantly cut back on their discretionary spending, which is having a definite impact on our business operation. Across the country the current economic and industry trends have adversely affected the gym business as a whole, making it necessary for us to approach you about providing some type of relief as we move forward.

Please contact me at your earliest convenience to discuss this matter further. 

Thank you for your attention to this matter. 

Sincerely, 

President/General Manager

[Phone Number]

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Letter of Intent - Sample

Dear [Landlord]:

Thank you for working with me on the [Business name goes here] lease. Your patience, cooperation and ways you've been able to accommodate our needs are greatly appreciated.

As per my meeting with you on [day], [date], [20XX], I have decided to accept the Lease that incorporates space [1234 Oak Street], provided some slight changes and clarifications can be made. 

Below, please find a list of my concerns that were discussed and agreed to during our meetings that do not appear in the Lease you submitted to me for review. Realizing that some of these items were discussed and agreed to after the Lease was already drawn up, I have tried to outline them for you so pertinent items can be made a part of the final Lease document.

The following items need to be addressed:

1. If the State or County requires asbestos removal, Landlord shall pay for the removal and disposal. 

2. The commencement date on the Lease needs to be changed to reflect the correct date.  All other corresponding dates will also need to be changed. 

3. [Lessee] will be listed as President on all signature pages.  

4. Landlord acknowledges that tenant is to receive three (3) month free rent on total space as per negotiations. Rent on the xxxx square feet is not to start until tenant occupies space. (Including CAM charges.) 

5. Personal guarantees will be limited to three months and will be removed automatically.

6. Signage - The existing signage can directly above space to be used by tenant.  (Landlord to pay for sign face as per new signage program.) 

7. As per our negotiations the Consumer Price Index (C.P.I.) should appear in the Lease with a 2% minimum cap and a 5% maximum cap per year for the term of the Lease, based on the Consumer Price Index published for the [city goes here] area.

8. Allowance For Improvements on page 18 should be updated and language inserted indicating a $3,900.00 carpet allowance for tenant upon submitting receipts to Landlord. The $40,000.00 allowance figure should be update to allow for the purchase of new HVAC units.

9. As discussed, if needed, XYZ Corporation will gladly pay for an outside plan check to help expedite the approval process. 

10. Exhibit B to be rewritten, outlining in full the agreed scope of work to be completed by Landlord. The updated architectural plans, which show the improvements, will be attached and made part of the Lease.

11. Due to the age of the H.V.A.C. units, Landlord has agreed to replace the units at their expense. However, for the short run the existing unit will be repaired and made operational and will be replaced by Landlord at tenants option, depending on the efficiency of said unit. 

12. Two additional three (3) year renewal option periods will need to be added to the lease. Said options not to exceed the base rent at the time the original lease expires. 

I think that we would both agree, that to list all the items we discussed during our meetings would be almost impossible to detail. Therefore, your cooperation in working with me on small but important items will be greatly appreciated.

Once I receive the revised lease, I will promptly consult with my attorney to ensure completeness and accuracy. If have misunderstood your concerns or left out other previsions that were discussed, please let me know so that we can include them in the final lease document. 

Looking forward to a long and successful business relationship with you. 

Sincerely,   

[Lessee]

President, [Company Name] 

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