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New Lease on Life (Part 2)

CHICAGO — Negotiating and signing a lease is often a key component of starting or maintaining a self-service laundry business, but a store owner may pay a heavy price—literally and figuratively—if he/she doesn’t fully understand the ramifications of an agreement.

This month, American Coin-Op asked three experts to weigh in on commercial leases and offer their insights—and even some warnings—about the leasing process.

Larry Larsen, of Laundromat123.com, is a licensed real estate broker and has more than 30 years of experience in the ownership, management and construction of Laundromats.

Brad Steinberg is co-president of PWS, a 50-year-old California-based company that says it is the largest broker of existing and new Laundromats in the United States.

John Vassiliades, CEO of Chicago-based J. Vassiliades & Co., is a licensed business and real estate broker with more than 40 years of industry experience, having brokered the sales of over 1,000 coin laundries.

Q: How much flexibility does each party—the lessor (property owner) and the lessee (laundry)—have when it comes to negotiating a lease?

Steinberg: Most of the heavy lease negotiation is done when the Laundromat is first built. When it comes to buying an existing Laundromat and assuming an existing lease, it can be tough to negotiate significant changes to the lease.

The best chance a new buyer has in negotiating more favorable lease terms is to show the landlord that you are intending to spend significant dollars to improve the operations of the laundry. If the landlord is going to make any concessions, they are going to want to see that you are investing to beautify the business, which will in turn lead to more stability with the Laundromat tenancy and be a benefit to the entire shopping center.

Vassiliades: They don’t call the landlord “lord” for nothing. If you’re going in on a new lease and you’re going to build a new Laundromat, I think you have a lot more flexibility. I’ve negotiated where the landlord will actually help with the buildout for a good long-term lease. … The best time to negotiate for a real long term is when you’re first going in there. If you’re already there and are negotiating for a new lease, it’s very difficult … Are you going to pick up your equipment and walk out of the store if you don’t like what he says?

Larsen: Unless the landlord has been unable to rent the space, or wants more money than the market demands, you have limited to no flexibility. Your only negotiating chip to play is you’re willing to sign a lease.

When you start negotiating a lease, you should arrange a meeting in person with the landlord. Bring your credit report, financial statement and a business plan explaining your ability to pay and how you’re going to improve the premises. Think of it as a first date: flowers, candy, shower and comb your hair.

You should explain that the long-term lease you desire is reasonable because Laundromats have historically been great businesses for paying rent on time and avoiding vacancies. Landlords are concerned about tenants who do not pay the rent, go out of business, or cause damage to their property. Convince the landlord you’re not going to be a problem and you’re off to a good start.

Q: How might any of the following play a role in a lease negotiation: visibility of location from street, property maintenance and/or repair, utilities, parking, signage, insurance, or the ability to renovate or expand the space later?

Larsen: Prior to the negotiation of the lease, you should determine that there is adequate parking with a minimum of one parking space for each 400 square feet. The store should be visible from the street. You may want to be able to install a particular sign, a monument sign, or have a certain placement on an existing monument sign so the community knows you’re in business. Keep in mind that most signage issues are controlled by the building departments of the city in which the premises are located.

The other items are covered with careful reading of your lease provisions. If you’re building a new store, the landlord can be asked to contribute to the cost of utility installation, tenant improvements, and to provide free or reduced rent while your store is being built.

Vassiliades: Visibility is an important point, particularly if the center is L-shaped. … The center sections are most difficult (for the property owner) to lease. They’re not the best locations for Laundromats. The end piece, on one end or the other, is ideal. … It’s not as important to be highly visible from the street. If you’ve got good signage, you’re OK in most cases.

Unless the landlord is completely naive, you’re going to end up paying your own utilities. … (Regarding common area maintenance), unless you’re in a freestanding building, the landlord takes care of all the maintenance and then charges back each of the tenants their portion. He may even add a fee on for doing it. The devil is in the details, so when you’re negotiating the lease and they’re charging you for common area maintenance, be sure you know exactly what that’s for.

Check back Monday for the conclusion: Lease length, the exit clause, common mistakes, and who can help

Miss Part 1? You can read it HERE.

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