Leases, Laundromats and Locations, Locations, Locations
by: “Laundromat 123”
Current successful Laundromat owners know the value of a lease. Those still searching and newbies will eventually learn that there are two main aspects of achieving success in the operation of a Laundromat. The first is a lease with a reasonable market rate that allows a profitable operation in the space rented. The second relates to location, location, location and is best understood as the three legs of the stool of success; population density, visibility and adequate Laundromat parking.
Unfortunately, first time buyers of Laundromats have seldom seen a commercial lease. Think of an apartment lease and increase it fivefold. Law courts in our country provide guides and restrictions for residential leasing, but when you negotiate a commercial lease, it is presumed you should know about business leases; very few newbies and many experienced owners do. Commercial leases contain provisions slanted towards the benefits of the building owner and few benefiting the tenant.
Laundromat leases can be gross or net. In a gross lease, all the expenses (except utilities) are included, just like you have in a typical apartment lease. In a net lease you have a base rent and then the lease tells you what additional expenses the Landlord expects you to pay. Building insurance, property taxes, common area upkeep, repairs, parking lot cleaning, security guards and cleanup are common additional costs paid under net lessees. CAM and Net/Net/Net are terms used to describe some of these lease add-ons. Read the lease carefully and if you have any doubt contact your consultant or attorney to explains things you do not understand.
The amount of the rent and the length of the lease are easy to understand; even new buyers get these two provisions. Other important terms are hidden away in the language of the legal professionals and contain the terms that can cause problems for tenants. An example is a lease option. Is it guaranteed or only providing a “first right of refusal” to lease at market rate? Is the option personal to the original tenant or can it be assigned to a new buyer? What about your obligation to pay for a new roof or resurface the parking lot?” Being profitable in the Laundromat business requires a lease that is fair, reasonable and understood by the tenant.
Unless the landlord has a location that is difficult to rent, or wants more money than the market demands, you have limited to no flexibility and no power. Your negotiating chips are few to none. If you want to retain the premises, you have to be willing to sign a lease extension under the demands of the landlord.
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 problem and you’re off to a good start.
If you’re buying an established lease the minimum term to consider is ten years. If you’re starting a new Laundromat, you want an initial lease of ten years with options (at the same terms and conditions) for an additional ten, fifteen or twenty years. Time passes quickly, so get as much time as you can.
Prior to the entering into negotiations for a 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.
Many other items are revealed through a 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.
Some lease negotiators recommend a provision that allows a cancellation of the lease in the event of tragic and unusual occurrence. An example of the need for this provision was demonstrated during an earthquake in a major U.S. market a number of years back, when the single-story Laundromat building survived without critical damage, but all the surrounding neighborhood three-story apartment buildings were so damaged that they were all red tagged. This might be a rare happening but is something that should be considered. The most common 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.
A final suggestion relates to finding help in negotiating your lease or extension. Newbies also tend to overestimate their knowledge of the business and try to negotiate leases on their own. Hire a consultant or advisor to help you avoid mistakes. An experienced consultant, attorney or accountant who specializes in Laundromats can be of great assistance. 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 own profit and not on your lease terms. Assist yourself by using the sources available and also relying on your own good common sense.
Operating a Laundromat is much easier than negotiating a fair and reasonable lease. Before you buy, put in the time to understand the lease terms, obligations and downsides. Nothing I have found is more rewarding and profitable than owning a Laundromat and it all begins with a well negotiated lease and location. Good luck.