Salon Business Leases
Taking on a lease can be the most significant commitment for your salon business.
What should salon business owners know before taking on a lease?
It’s essential to consider the lease offered to you before accepting the terms. It is your right to negotiate the lease terms. Nearly all lease terms are negotiated rather than accepting the draft lease sent to you.
Lease set by landlords should be fair balanced and consider any concerns the tenant may have: reasonable terms and rent equal happy tenants and a landlord.
Setting the terms or the rent to high will only result in a high frequency of tenants changing. Therefore, it is not suitable for any landlord.
Accepting the landlord’s rent valuation can potentially push the rental value up.
This is because real estate surveyors (RICS) are the only professionals who can give you the actual rental value of the premises.
How do short- and long-term leases vary?
Your decision to lease is based on whether a salon location is your long- or short-term goal. For example, if the location is not suitable for your long-term goal, you should consider renting it for a shorter term while you relocate.
Or you may wish to agree on a long-term lease with break options to give you flexibility and stability. You could even decide on a long-term lease and have a long-term plan for selling the salon in the future.
A thriving business with a good income will mean the goodwill of the business created has value should you consider selling the business.
Short term leases do not need to be registered at HM Land Registry, and as such, the legal fees are usually a lot less than a long ( 7 years or more) lease.
My landlord won’t negotiate a break clause?
A break clause is essential if you plan to use it, but you shouldn’t be concerned if you know you will never use it.
Break clauses are not frequently activated; however, note that break clauses usually apply to both parties, the tenant & landlord.
If your business is thriving and you have built the business up, a landlord can also invoke the break clause. This means you cannot sell your goodwill to anyone else.
I want to negotiate my existing lease with my landlord?
Suppose the lease prohibits you from running a hair salon. It doesn’t necessarily mean that they prohibit you from offering beauty salon services. Your primary function as a salon could be argued to include a beauty clinic offering treatments.
However, if the lease expressly prohibited beauty services, you will need to seek a deed that includes additional services or get a new lease or a deed of variation.
Therefore, a restricted user clause is less valuable than an open user clause. It would help if you negotiated relaxed restrictions or one that gives you a broad scope for various trades.
So, the more services you provide in the property, the higher the rental valuation is likely to be. Therefore, you should negotiate a slight raise in rent to allow nail services.
You could negotiate a Deed of Variation to allow for a different business to operate from the premises.
Can i rent out treatment rooms in my salon?
Most leases will automatically prohibit you from renting treatment rooms. You may need relevant clauses in the lease so you can sublet or issue a lease (or licence) to people you are renting space.
Many hair and beauty salons treat renters as self-employed staff. Giving space to another business is a property transaction. They must be documented in a lease—instead of a self-employed contract.
What do you consider when taking on a lease?
Depending on your repair liability, you should factor in service fees. This includes a sinking fund. Sink funds are service charge monies set aside on an account for future big projects. These monies could, for example, be put towards roof repairs or a new lift. Service charge should be only paid for maintenance areas of your premises. The landlord should provide evidence of this to you upon request.
It is common for the lease to burden the tenant to pay for the maintenance of the leased premises well as insuring the building. This is known as a full repairing insuring lease.
It is always worth asking the landlord or agent for a copy of the policy and premiums to ensure that you’re only paying for the portion of your policy/premiums you occupy.
Check with the local authority what the business rates are, and get this in writing from the local authority.
Think about utility costs and the cost of putting in new utilities too. For example, if you have to make an electrical or gas connection to your home, you could have to find the money and incur significant delays.
Should you negotiate a business interruption (Covid-19) clause if more business closures appear in the future? The answer is no; there is no point in that.
You can certainly try. But it might be better to agree to the lease on the terms you’re both happy with for the length of the lease. And make a separate side letter for what would happen if there were more closures due to the pandemic.
How often should the landlord be able to increase the rent during a lease period?
It is common practice for rent reviews to be every three or five years for commercial leases. Longer leases are generally five-yearly and shorter leases three-yearly. I’m not a fan of RPI increases because this artificially increases market rents during a market downturn. You’ll also have to look for an apartment to rent.
Most open market tenants review the rent before signing the lease. However, if tenants agree to the rent increase, this shows there is some competition in the market.
Mrs Rauf a landlord said: “My retail unit which used to be Crawley Botox was up for rent. I was surprised by prospective tenants not dealing with the basic due diligence when considering taking a lease for a hair & beauty salon lease.
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Author: Amanda Goldsmith [email protected]
Date: 8th of April 2022
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