How to negotiate your lease terms, rent-free periods, service charges and Landlord & Tenant Act protections without getting stitched up by your landlord.
Imagine going from having a thriving 250-member site to having nowhere to trade, all because you didn’t pay enough attention to your lease terms.
That’s exactly what happened to someone in my mentorship group.
No, it’s not what you got into the industry for. Yes, it’s boring. But if you don’t pay enough attention you’ll find out the hard way just how important it is.
Lease heads of terms every gym owner should have
Most businesses would benefit from having basic Heads of Terms before they even start negotiating a lease. Something that sets out what you actually need.
Your lease should be rooted in your financial model, not in whatever the landlord throws at you. Length of lease, cost, rates, service charge, break clauses, rent-free periods… all of that has to line up with your cashflow and your capex.
People say, “The landlord offered me three months rent-free,” and I’m looking at their model thinking: you need nine. So it has to start with the numbers, not the conversation.
The mistake I see all the time is people taking the shortest lease, least protection, crappiest unit because it’s the cheapest.
I get why. It’s easier to get out. But there’s no security there and it’s not a very grown up way to operate. And it almost always ends up biting you in the arse.
How to choose the right lease term
You need a lease term that’s long enough and actually matches your capex investment. I’m seeing people put £300k into fitting out a gym and they’re on a three-year lease, or a five-year lease with a break at three.
Which is madness.
The lease term has to make sense relative to the level of investment.
So: the length, the breaks, whose favour those breaks are in, and how easily they can be actioned – all of that matters.
How to negotiate rent-free periods
Rent-free periods make a huge difference, especially if you’re starting from scratch. Same with any capital contribution from the landlord. That’s more common on new builds or mixed-use developments, but still worth pushing for.
How to avoid getting hammered on service charge
You need to push back on an open-ended service charge. Negotiate for it to be capped. In bigger developments you might also get a “sinking fund” added on top, which is basically the landlord asking you to contribute towards bigger future renovations.
Dilapidations are another big one. If you make major changes to the building, what are your obligations to put it back the way you found it? People get caught out on this all the time.
Are you inside or outside the Landlord and Tenant Act?
Another key point: are you inside or outside the Landlord and Tenant Act?
If you’re inside the Act, you have protection. The landlord can’t just boot you out, which weighs things more heavily in the tenant’s favour.
If you’re outside the Act, the gloves are off. Six-month notice period, four-and-a-half years in… the landlord can basically do what they want. And it’s very common for landlords to delay negotiations until the last minute, so they’ve got you by the short and curlies and can push the rent wherever they like.
We see it all the time. We’ve got one coming up in Richmond next September. I’ve already agreed the extension and we’re about to complete.
How to manage your landlord relationship
Your relationship with the landlord is massively important. Who the landlord is makes a big difference – it’s a bit like who your investors are.
We’ve got deals where we deal with landlords directly and they’re legit. We’ve got others where we deal with them indirectly and they’re complete… well, you can imagine. And then there are leases where you’ve got a managing agent, then a landlord, then a superior landlord. So to get anything done, you’ve got to go through five layers of decision-making and then all the way back down again. It takes forever.
The other thing people forget is repairing obligations. Are you responsible for the roof? The exterior? The structure? It’s very common for something to go wrong on the outside of the building and only then does someone realise the lease says it’s on them.
A cautionary tale: when lease negotiations go wrong
Worst situation I’ve ever seen? They had a five-year lease in place. All agreed. But there was ambiguity around when the lease was actually signed versus when they moved in. They signed it, didn’t move in for nine months, but the lease was dated nine months earlier.
They had a gentleman’s agreement that the lease would effectively start later but they never cleaned it up with the solicitors.
They were given six months’ notice to leave. A 250-member gym, full capacity, straight to nowhere to trade.
Just like that.
I’ve seen loads of people not pay attention to their notice period – supposed to have six months, turns out they’ve got none. Suddenly they’ve got 30 days to get out. Madness. And all because they didn’t take the legals seriously at the start. Didn’t want to pay for a solicitor.
Everyone complains about the cost of a lawyer. My view: you’re going to pay that fee at some point. You might as well pay it at the start.
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