NEW ORLEANS — As business owners, self-service laundry operators have many responsibilities, ranging from daily operational tasks to how they can grow and market their business.
Tending to your laundry’s lease is a key responsibility, advises Brian Wallace, president and CEO of the Coin Laundry Association (CLA).
“The [coin laundry] business can be somewhat forgiving,” says Wallace. “You can make mistakes here or there … but leases is one of those areas where if you make a mistake, they’re a pretty hard mistake to recover from.”
To assist in navigating the logistics of leasing, the CLA hosted an Advanced Laundry Lease Analysis panel at this summer’s Clean Show, featuring Brian Grell, executive vice president at Eastern Funding; Van Merrill, vice president of vended laundry development and sales at CG West; and Charlie Pasquale, founder of Pasquale Properties and BCC Payment Systems.
Leases are “an important asset” of a business for not only laundry owners who lease their laundry space, but property owners themselves, Wallace says.
“I think this has relevance for those of you who own your buildings, because at some point you might find yourself wanting to sell that laundry but keeping the real estate and becoming a landlord.”
There are many aspects of the leasing process that store owners can attend to themselves, according to Wallace, but “it’s also important to know that a lot of these [aspects] are driven by state law in terms of how your state approaches some of these key elements.”
“It’s good to be frugal in this business [but] you need to hire the proper representation because it’s so key to the value of your business,” he adds.
“Instead of you yourself going out there and introducing yourself to the landlord, it’s always better to have a professional between you and the landlord who can get in there and negotiate and get you the best … deal,” adds Pasquale.
Despite the many ins and outs of the process, all panelists agreed that now is a good time to lease space, particularly because of the availability of vacant property.
“The marketplace is really coming alive, so that kind of velocity of transactions that is going on out there is really good,” says Merrill. “It just speeds and greases the wheels of getting good leases done.”
“Landlords are willing to make very good deals right now,” adds Pasquale. “They’re looking for strong tenants to come into their buildings and be able to pay rent.”
Market conditions have also led landlords to get into the laundry industry. “What we have noticed is that many landlords, people who own properties, are actually themselves looking to get into the laundry business, because it’s just an easier way to develop a spot that’s been vacant for a number of years,” says Grell.
OPTIONS, CONDITIONS AND FINE POINTS
Merrill explains that, among the finer points of a lease, 1) conditions have to be established before a laundry owner enters into an agreement, 2) lease options should never be “personal,” and 3) one must allow for provisions.
“You have to be very careful when you set up a lease,” he says. “You have to set up what the conditions are going to be in an assignment. If you don’t do that, then the landlord is going to start making up a lot of onerous conditions.”
Regarding lease assignments, Merrill adds, “It will not be necessarily compelled, delayed or conditioned. Landlords can delay an assignment and blow a deal … to play with time and really make you squirm, so you have to be careful about that.”
For Wallace, it’s all about “thinking ahead.”
“It’s about thinking ahead to the point at which you want to be able to sell that business and not being held hostage knowing that with no lease, you have nothing to sell,” he says.
“Most Laundromats are sold when they’re worth the least,” Wallace adds.
Grell spoke of the “crucial” part of the process—financing.
In many cases, new laundry store owners have already signed their lease prior to signing a collateral assignment of lease document to the landlord, which many financing companies require of business owners looking for financing.
“The time to get that [document] signed is before you sign your lease,” says Grell.
Failure to do so, he warns, could cause owners to lose leverage in negotiating with the landlord, who could then “put in clauses that are unacceptable for anybody who is in financing.”
LIMITING LEASE LIABILITY
There may come a time when a store owner is ready to sell the laundry, but may still be locked into the obligations and responsibilities of the lease, Merrill says. In such cases, establishing an exit strategy from the lease, or lease transfer, should be laid out during the negotiation process with the landlord.
“It is an extremely important thing that you try to limit your lease liability through the chain of assignment.”
Regardless of who you assign your lease to, in some cases, you can still be pursued if your assignee defaults, according to Merrill.
“What you want to do … is really put a stop into the lease where, after the actual signing, you are going to be relieved of liability,” he says. “It’s at the time of putting together the lease that you negotiate these things, because that’s when you actually have leverage.”
Check back Thursday for the conclusion!