An early spring storm was raging outside, but my cardio hip hop class was pumping on a Thursday evening. The class was just hitting its stride when one of my regulars motioned to me, and I saw that she was dripping, not just from sweat, but from what was now becoming a fairly steady stream of water from the ceiling. I immediately stopped the class, grabbed the woman a towel and put the first trashcan I could find under the leak. We maneuvered around the trashcan and finished the class, but by the amount of water that had accumulated in that time, it was clear to me that this was going to be a significant issue. Who was I supposed to call? What could I do to protect my dance floor? And who was going to pay for the repairs that would certainly be needed? Spoiler alert: It wasn’t as straight-forward as I’d hoped.
Making the leap to start, grow or relocate your fitness business should be an exciting time. But don’t let the allure of being a business owner distract you from the very real challenges that can come from poor planning at the outset. The ceiling leak and its eventual outcome is just one example of a scenario I hadn’t planned ahead for when I owned a boutique fitness studio. I never shy away from using my hard-learned lessons to help others avoid my mistakes— so here are the things that I wish someone had told me before I signed a lease for my fitness business.*
Who is responsible for what?
One of the most important—and most expensive—contracts that you will sign during this process is a lease or rental agreement for the space. It is pivotal to delineate who is responsible for what and in what circumstances when it comes to the space. Keep in mind that space includes not only the physical rooms, but the walls, plumbing, roofing, sidewalks, parking spots and everything in between! You want to be sure that you and your business are protected, and that you’re fully aware of any risks that you are assuming.
Insurance and liability
The safety of your space for staff and customers needs to be a top priority. Here are some questions to ask and scenarios to consider when it comes to your lease:
- What kind of insurance does the property owner hold and what does it cover and not cover about your physical space, and are there special circumstances? In the case of my leaking ceiling, the property owner’s insurance covered the cost of repairing the building itself, but it did not cover my costs to replace any custom buildouts, like the specialty dance floor, which had water damage. Make sure you have a clear understanding of what is covered and what is not. I had assumed their insurance would cover scenarios like this, and ended up paying out of my pocket for repairs since I didn’t have the right coverage.
It’s also important to note that it is very unlikely that the property owner’s insurance would cover your items in the space such as fitness equipment, computers or sound systems. Consider the following scenarios, which could all have different levels/types of coverage when it comes to insurance:
- Natural disaster or act of god (e.g. flood, tornado, earthquake)
- Criminal act (e.g. vandalism, arson, robbery)
- Negligence (e.g. lack of maintenance leads to an electrical fire, another tenant in the building leaves the water on and multiple units flood)
- What kind of insurance does the property owner hold and what does it cover and not cover regarding use of the space, and any shared spaces? Now we’re talking about humans and injuries or other losses. In nearly every scenario, if a customer is injured using the leased space as intended, for example, they trip over a piece of equipment or injure themselves during an exercise, that will need to be covered by your own liability insurance. But consider the following scenarios:
These scenarios can become very nuanced and will likely be very dependent on the type of space and shared space that exists. Additional considerations may need to be made. Get it all in writing!
- A customer in your space is injured as a result of a natural disaster, act of god or other building/facility-wide crisis (e.g. a customer is injured by shattered glass during a tornado)
- Your customer is injured when passing through shared space to reach or exit your space (e.g. they slip and fall on ice on the sidewalk)
- Incidents that occur after a customer leaves your space or the shared space (e.g. a customer consumes alcohol in your space at an event and gets into an accident on the way home)
- What insurance will you need to hold? Some property owners or management companies will require you to hold a certain type of insurance or have a minimum amount of coverage. Find out if there is a requirement, and then use the above considerations to determine what kind of insurance you will need to fill the gaps between the owner’s coverage and what you will need to be protected (in addition to your own personal liability insurance). This includes what insurance you will require any additional employees and/or independent contractors to secure for themselves.
- Security cameras. Are there cameras in place in the facility, and if so, where? Is all footage recorded, and how long are those recordings kept? Can you install your own cameras within your space? All of this can be important should something occur in or around your space where liability is disputed or the circumstances are questioned.
Use and maintenance of the space
Other things to consider when reviewing the lease are any specifics related to how the space may be used, what kind of upkeep is required and who is responsible for that maintenance.
- Are you allowed to modify the space and if so, to what extent? This could include anything from painting to knocking down a wall. Make sure that any physical changes you plan to make to the space are permitted.
- What activities may take place in the space? Make sure that the space is properly zoned and permitted for all activities you plan to have take place.
- What kind of equipment can be installed in the space? You’ll want to confirm that all equipment you plan to install (fitness equipment, sound system, a sauna, etc.) can be accommodated within the space. This may include making sure the floor is properly reinforced, there is adequate plumbing, etc.
- For which maintenance activities are you responsible vs. the property owner/management company, and who can provide that maintenance? Little did I know that the HVAC system for my studio was located on the roof of the building. I learned (after signing the lease) that I was responsible for having the filter changed, but I wasn’t allowed to go onto the roof to change it myself. Therefore, when it needed to be replaced, I had to purchase the replacement filter, contact the management company’s maintenance team, and then pay them to go on the roof and replace it. Don't get blindsided like me. Confirm if you can perform the maintenance for which you’re responsible yourself, if you’re required to use the owner or management company’s maintenance team, or if you can/must have licensed third parties perform the maintenance such as plumbers or electricians.
- What about shared spaces? Are you responsible for shoveling the sidewalk if it snows? Do you need to cut the grass around the space? Confirm all of these tasks that may not be specifically outlined in the contract.
Hidden costs, fees and financial considerations
These are especially important if you’re working with a larger management company or corporation.
- Are there any fees or taxes above and beyond your monthly or annual rental fee? Will you be charged for property taxes on your space? What about maintenance of shared space? The first January owning my studio I received a bill of $1,200 for “CAM.” I had never heard of CAM before. This stands for “common area maintenance,” where the property management company took the collective costs of upkeep of shared spaces during the year (snow removal, landscaping, parking lot lighting, etc.) and charged each tenant a percentage based on how much of the building your space occupied. Negotiation of fee caps is often overlooked in lease agreements; you will not get what you don’t ask for!
- Rent increases. Does the owner or management company have the right to increase your rent at your next renewal, or will you have a fixed rate? For how many renewal cycles would a fixed rate be in place before an increase? Is there a maximum percentage increase at renewal?
- Competition. Does the lease agreement have an exclusivity clause for fitness, wellness, or health-related businesses? It is important to be sure your space is protected against competition setting-up shop next door. A lease option might even include a first right of refusal for new tenants.
- Financial hardship. No new business owner wants to consider the possibility of not being able to pay their rent or closing their business. But it’s important to have all of the necessary information up-front so that should the situation arise, you can make the best decision for you and your business. Things to consider and confirm:
- What happens if you cannot pay rent? Can you make partial payments? Will you be charged interest or a fee on late payments? How much debt can be accumulated before you are evicted?
- If you should close or sell your business, can you sublet the space for the remainder of your lease? Could a new owner take over the current lease? Would there be a fee?
- Should you need to end your lease before the contracted end date, what is the financial penalty?
Some final thoughts
When reviewing the contract do not be shy about asking questions and seeking clarification, and certainly don’t make assumptions—if it’s not specifically outlined in the contract or an appendix, ask.
Do not be afraid to ask for changes or to negotiate price, fees, or any other part of the contract. The worst they can say is no, and then you know for sure exactly what you’re committing yourself to. Additionally, do not assume requested changes have been made without reviewing the revised contract.
It may seem like an added expense, but the fee you may pay to have a legal professional review a lease, or any contract related to your fitness business, before you sign it, can end up saving you thousands of dollars in the long-term. If you have partners in your business, it's also beneficial to consult a legal professional on how all parties should be attributed in the lease agreement so not one person is solely responsible for the risk.
I hope that the lessons learned from my mistakes can help to save you both stress and money as you embark on your new business. I wish you the very best!
Caitlin Kinser, M.S., has been teaching group exercise classes since 2010. She’s taught in a variety of settings including fitness studios, large gyms, college campuses, youth/community centers and virtually. She has taught multiple formats, but her heart belongs to dance fitness. Caitlin owned and operated a boutique fitness studio for two years prior to joining the professional staff at the American College of Sports Medicine®, where she serves as the director of digital strategy.
*Disclaimer: This blog is not legal advice. It is the sharing of one individual’s experience, and it is not meant to be an exhaustive list of all the things to consider when signing a lease or rental contract. To ensure that you’re fully protected and understand your risks before signing a lease or any contract relating to your business, consult with a legal professional.