Hair Salon Lease Agreement: Factors in Success

Anatomy of a Hair Salon Lease Agreement

To put it simply, a hair salon lease agreement is a contract between a commercial property owner and a salon business owner. It details the terms of the relationship between the parties, outlining expectations and benefits.
For salons, lease agreements provide assurance of a set term at a specific cost to run their businesses. Lay the groundwork for a successful salon in your chosen space by minimizing variables. Although a tenant may wish to make improvements to a new space, a lease protects them from losing their investment before they see any return. Tenants should be aware of their rights and not shy away from discussing lease terms in depth with landlords.
For property owners, lease agreements provide the freedom to improve and rent a managed space to several tenants. These agreements provide continuity for building owners while allowing flexibility for individual salon owners. They may also protect property owners against issues like consistent vacancy and late or nonpayment.
A commercial lease agreement can be generally divided into three sections: introductory , financial, and legal. Following the introductory section, which identifies all parties and the property itself, the financial section makes up the bulk of the document. It addresses expected financial obligations for both tenant and landlord.
The financial section will include rent costs and methods of payment. It usually includes details such as: Returning to the opening section of the lease, there may also be clauses within that section relevant to both tenant and landlord. These include lease duration, property address, and lease expiration. Asset use and maintenance requirements such as janitorial work or HVAC change outs are also covered.
Finally, the legal section of a commercial lease outlines conditions for terminating the agreement. It can include lease renewal and potential grounds for eviction.

Key Clauses to Consider

There are several essential clauses that should be part of a hair salon lease agreement:
Rent: Make sure you include a clear formula for calculating rent in the terms of the lease agreement. There is no right or wrong answer to what you should pay for the use of the space; it simply needs to be a price the landlord will accept and you can afford to pay. It is common for the lease terms to require monthly rent to equal 8% of the salon’s gross revenue during the previous year.
Term: A lease agreement needs to have a clearly defined term (a specific length of time) as well as a start and end date. It is also crucial that both you and the landlord have the option to renew the lease agreement when it expires.
Maintenance: Neither party should use vague language in regard to what happens if an issue arises at the property, such as the heating system breaking down or significant water damage. Under terms of your lease agreement, you should be expecting the landlord to handle all repairs and maintenance of the property that are required to keep it in a condition suitable for your business.
Specifics: Your salon operation will require some special considerations in regard to the lease agreement. You will need an effective ventilation system to eliminate fumes and vapors from hair and chemical products. The property should also have easy access to hot and cold running water.

The Art of Negotiation

When it comes to negotiating the terms of a hair salon lease, as in every commercial lease negotiation, there is no substitute for knowledge of the local market and the ability to present a clear picture of your business requirements without sounding unprofessional. For example, you should be aware of typical rates for the particular geographic area and be able to provide comparables to demonstrate your argument for a better lease rate than the landlord is asking. Similarly, you should be able to point out unique features of your company and how they require special handling, or that you have a track record with the neighborhood. You should also be able to present a compelling request for longer or shorter term measures based on your past experience or future projections.

Legal Factors and Compliance

An element often overlooked when entering into a hair salon lease agreement is ensuring compliance with local zoning laws, building restrictions, and health regulations. Building zoning restrictions will dictate whether your proposed hair salon can operate at the selected location. Zoning laws are municipality specific. You may need to seek a variance to proceed. In large cities, issuance of a business license for a hair salon may be issued only if zoning regulations are met . Health department regulations are apt to require provision for a public bathroom, handwashing stations, and waste disposal.
Terms of a lease will govern the rights, duties and obligations of a landlord and tenant for provisions not otherwise mandated by law, including but not limited to, length of the lease, rent due, security deposits, and tenant improvements. For these reasons, it is important for you to seek legal advice before entering into a hair salon lease agreement.

Common Pitfalls and Their Solutions

One of the most common mistakes is for a business owner to assume that the lease is a rent agreement where they pay rent and taxes, and then leave it at that. A hair salon agreement should never be treated in that manner. For example, you’re paying $1,000 a month plus 5% of the gross sales or receipts, which you agreed to in the agreement. If 5% of your sales is $500 a month you could easily owe the landlord $6,000 a year on top of what you’re paying in rent (keep in mind commercial leases are not regulated by state rent control laws). Properly understanding how the lease impacts you as a business owner financially is key to maintaining steady cash flow for the life of the lease. You should always have an attorney review the lease yourself before signing anything. You should also have the attorney review the lease if it’s already been signed by someone else involved in the business (especially if you weren’t part of the negotiation process at the time the lease was signed). It is possible for key terms of an agreement like a lease to be negotiated and drafted beforehand, but somehow be left out of the signed copy. Both situations have happened more times than we care to count. Many owners believe that the rent paid to the landlord provides them with the exclusive rights to operate their specific business type in the commercial property. A common pitfall is interpreting the exclusivity clause to mean that a competing business can’t open in the plaza, when in many cases (especially if the language is poorly drafted) it can mean that other competitors in the same exact business can’t be in the plaza. The consequence of this is that competitors may open across the plaza from you providing direct competition for your customers. The language needs to be drafted with all situation in mind so that your business is properly protected from unfair competition. Owners frequently do not understand that any alterations or removals they do to the existing structure must be approved by the landlord. Alternations can’t be done without the landlord’s consent and as such can be very frustrating to not only the landlord but any business remodeling the structure in their own unique way. The result being either very confused parties for the entire lease or an unlawful modification with the consequences landing squarely on the business owner’s back. In certain cases, the landlord may withhold consent for a remodel that you’ve already made, forcing you to pay to return the property back to its original state which could have a larger financial impact on your business than you planned for.

When to Prepare for Lease Termination or Renewal

Preparing for a lease renewal or termination is a critical factor in the success of your hair salon. With each passing year, your lease will become a greater asset to your salon’s value. Failure to start planning for a lease renewal or termination early can cost you when it’s time to move.
As with other leased spaces, you will need to face the decision of whether you want to try to renew your lease, buy the space, or build/remodel a new location.
Lease Renewals
You should explore your hair salon lease agreement for a renewal provision. If your lease includes a renewal provision, you will need to follow your contract terms at least two years prior to the end date of your lease or incur added costs. It is important to engage in the negotiation process as early as possible to increase the chance for a successful negotiation. Your local laws and industry experience will help direct your focus during a renewal negotiation.
Termination
If your lease does not include an option to renew , the lease agreement may contain an understanding to extend your time in the space if you notify your landlord within a certain time period. If your lease does not contain a provision for extension and you lack the capital to secure funds to purchase the leased space, you should begin the process of identifying a new location at least two years prior to the expiration of your lease. You should consider the terms in your current lease and try to copy the more favorable terms into a new lease for your new location. You need to keep in mind that the market is responsible for setting the terms of your lease. However, you should not be surprised to discover that competing hair salon locations post high rents when the demand is high.