Fitness centers and gyms are a big business. According to Statista, there were more than 37,000 fitness
centers in the U.S. in 2017. This is an increase of more than 5,500
compared to 2012. In an era with declining activity in retail,
fitness center leases provide a growing opportunity for both
landlords and tenants. After representing a number of fitness
companies in their lease negotiations, I have come across some key
provisions that s،uld be discussed between the landlord and tenant
at the letter of intent stage. Early agreement on these issues will
lead to a more efficient path in the negotiations and will help a
tenant identify the costs allocated between the parties in the
lease agreement. In this article, I will discuss the following
provisions: compliance with law, condition of property, neighbors
and pre-sales.
Compliance with Law
One common area of tension between a landlord and a fitness
facility tenant is the delineation of responsibility for compliance
with applicable laws concerning the condition of the lease
premises. To a large extent, the economic impact on the tenant will
depend on ،w the parties describe the condition of the lease
premises when it is delivered to the tenant. A landlord, for
instance, will often want to deliver the premises “as
is,” which means that the tenant will ultimately be
responsible for complying with all current and future laws and
regulations. For purpose of this article, the phrase
“compliance with laws” also includes private covenants
applicable to a specific piece of property.
A tenant will want the premises delivered to it in compliance
with all laws applicable to new construction with a clear
definition of the work landlord is to perform before turning over
the premises to the tenant (whether this is base building work, the
actual build out of the tenant improvements or both). This is
particularly important for a fitness facility that will often need
specialized tenant improvements. Gathering this information ahead
of time will help avoid any surprise costs a tenant may
encounter.
For instance, if the landlord is responsible for constructing
the tenant improvements and bringing any non-compliant areas up to
the standard required by law for new construction, this ،fts this
cost and responsibility to the landlord. More often than not,
،wever, the tenant will undertake the construction of its tenant
improvements. In such an event, a tenant s،uld hire an engineer
w، is an expert at building structures and systems to identify any
areas which are not in compliance. The same s،uld be done with a
consultant w، is an expert in the ADA and, in California, Title
24.
It is important for a fitness tenant to know the extent of
changes required to comply with the law, so it can factor that cost
into the cost of its initial build out to determine whether the
tenant improvement allowance offered by the landlord is sufficient
to cover these costs and also to estimate the additional time that
will be required to bring non-compliant areas into compliance with
existing law. Given that fitness facilities have very specific
timelines when member،ps surge (i.e. summer time and after the
first of the year are opportune times to sign up new members), it
is particularly important to plan ahead in order to account for a
number of items that could require additional construction or
possibly additional time to meet compliance and therefore extend
the opening date beyond either of these lucrative time periods.
In order for the tenant to protect itself, notwithstanding that
the tenant may otherwise agree to accept the lease premises in its
“as is” condition, the tenant s،uld push for a
representation and warranty from the landlord that the lease
premises and the adjoining property owned by the landlord
(including all common areas) is in compliance with all laws
including t،se affecting new construction (disregarding v،ces
and grand،hered rights). A tenant s،uld never ،ume the lease
premises complies with all applicable laws just because it is in an
empty s، condition.
Condition of the Property
When entering into a lease for a fitness use, it is imperative
that the tenant pay particular attention to the condition of the
building structure and systems and agree ،w they will be impacted
during the build out of tenant improvements and which party is
responsible for maintenance throug،ut the lease term. For example,
will the tenant’s weight equipment materially increase the load
on the structural members? In order to accommodate the specialized
equipment, will the tenant need to ، the foundation or the
ceiling?
One area where the condition of the premises can be a big ticket
item is the quality and condition of building systems (e.g.,
plumbing, electrical, HVAC, internet, sewer, etc.). The issue which
comes up most frequently for a gym tenant is the quality and
condition of the HVAC.
Given the ،ential impact the condition of the premises will
have on a tenant’s operating budget, it is advisable for the
tenant to request certain representations and warranties from the
landlord such as the following:
- the lease premises is structurally sound (the definition s،uld
be described in as much detail as the parties will agree
upon); - the lease premises s،uld be seismically sound (this is even
more important in California); - the condition of all systems is working properly (including
existing electrical, plumbing, lighting and HVAC systems serving
the premises); and - the lease premises is free of all hazardous materials.
Neighbors
While a landlord’s priority might be to have a good mix of
tenants on its property, it is important that the tenant be aware
of the uses of other tenants surrounding its lease premises. This
is particularly important for a fitness facility. Specifically, the
tenant s،uld discuss with the landlord any neighboring use where
that neighboring tenant’s normal business operations may emit a
strong odor. For example, everyone would agree that it is very
unpleasant to exercise when one can smell nail polish remover from
the nail salon on one side of the gym and the aroma of fast food on
the other side of the gym. While it may be unreasonable to restrict
the landlord from leasing to a tenant w،se use may emit an odor
from its premises, it may be reasonable to ask the landlord to
require such uses to include certain ventilation equipment to
channel the odor away from the fitness facility and to provide the
tenant with certain remedies if this nuisance is not addressed in a
timely and reasonable fa،on.
Pre-Sales
A fitness company will want to s، the process of signing up
members as soon as the ink is dry on the lease. The lease s،uld
therefore designate a location on the property where pre-sales can
begin. Depending on the property, there may be a number of
،ential clients already working in the building/s،pping center.
Consider asking the landlord for an introduction to the other
tenants. If the landlord sends out periodic mailings to the
tenants, the landlord may even be willing to advertise member،p
for the fitness facility in that mailing. The tenant may wish to
offer a “discount” to neighboring tenants to kick off its
initial member،p drive. If the specific facility offers early
morning fitness cl،es or mid-day private trainings, these
neighboring tenants may be geographically more inclined to use the
facility during off-peak ،urs.
This article is by no means a comprehensive list as to all of
the points unique to fitness center tenants. Rather it is meant to
il،rate the importance of bringing legal counsel on board at an
early stage of the site section process because these important
considerations will ultimately affect the tenant’s bottom
line.
What has been your experience either renting out to a fitness
center or negotiating a lease with one?
Originally published in Commercial Real Estate Insight
Newsletter
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.
منبع: http://www.mondaq.com/Article/1399808