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New Lease on Life (Conclusion)

Lease length, the exit clause, common mistakes, and who can help

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: Given the investment tied to the average self-service laundry, how long a lease should a laundry be seeking at a minimum?

Larsen: If you’re buying an established lease, the minimum I would consider is 10 years. If you’re starting a Laundromat from scratch, you want an initial lease of 10 years with options (at the same terms and conditions) for an additional 10, 15 or 20 years. Time passes quickly, so get as much time as you can.

Steinberg: For a brand-new Laundromat, a total lease term of 20 years (base lease plus options) is needed. For any investment over $500,000, a 15-year-plus lease is recommended. For lower-priced stores, a shorter lease could make sense, but it should be reflected in the store purchase price. 

Vassiliades: I usually walk away from deals where I can’t get 15 years. You want to realize a return on your investment, and if you decide to sell after you get your return on investment, you want to know that you have something to sell. … On new leases, I really strive for 25 years. On existing stores that are in the (retail) center now, it’s hard to get landlords to go beyond 15 years.

Q: How important is it to incorporate an exit clause in a lease just in case the laundry’s business falters?

Steinberg: Anything a lessee can add to benefit them should be included in the lease. When taking over an existing lease, landlords are a lot less flexible in making significant changes. 

Vassiliades: You want to try to get a good exit clause out of there so that when you go to sell, you’ll be able to sign the existing lease to somebody as qualified as you and the landlord will not unreasonably withhold his consent to the assignment.

Larsen: I think this would be a minor consideration since few new Laundromats falter. The Laundromat “exit clause” is achieved through selling to another buyer. Laundromats are in great demand and tend to sell fairly quickly if reasonably priced. If you grow weary for any reason, sell it, don’t close it.

Q: In your experience, what are some common mistakes that laundry tenants have been known to make when negotiating a lease?

Larsen: New buyers tend to spend more time on potential income concerns and not enough on the lease provisions, parking, visibility and demographics. New buyers also tend to overestimate their knowledge of the business and try to negotiate on their own. Hire a consultant or adviser to help you avoid mistakes. 

Vassiliades: The biggest mistake (by a newcomer) is that they don’t have somebody who really knows what they’re doing alongside them, like a good attorney who knows how to negotiate a lease. If you’re trying to do it on your own, that’s the biggest mistake you can make.

If you’re going to do anything at all when you’re (already) in business and paying rent, you’re going to pay that rent on time … and you’re going to be very good to (the landlord) all the way through. … The other thing is make sure you have enough time, so you’re not waiting until the last minute to negotiate. If you wait till the last year to negotiate your next five-year extension, then the landlord’s got you.

Q: To whom can a laundry owner turn to for assistance in reviewing and negotiating a commercial lease?

Vassiliades: The best thing would be to get somebody who’s done this before. Work with a distributor who knows the lease you want from the standpoint of store operation, then you should also have your attorney working with you that knows all these things I’ve talked about, different clauses and how to protect yourself.

Steinberg: A lease is the lifeblood of your laundry. It is so important it should be negotiated using a broker or lawyer who understands the complexities of the contract. There are so many mistakes that can be made that I highly recommend using a professional to assist in negotiations and drafting the document.

Larsen: In my experience, a good helper for overall success can be a consultant, attorney or accountant who specializes in Laundromats. I would not rely solely on anyone who is making a profit on selling you a lease or a Laundromat. Friendly landlords, distributors and real estate brokers can have their eyes on their profit and not on your lease terms. Assist yourself by using the sources available and also relying on your own good common sense. I have found that an experienced consultant is a good place to start. 

Miss the earlier parts? You can read them here:

Part 1 — Understanding key terms and negotiation tactics

Part 2 — Lease flexibility, and some factors that can play a role in negotiations

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(Photo: © iStockphoto/Zentangle)

Have a question or comment? E-mail our editor Bruce Beggs at [email protected].