The Ultimate Guide to Beauty Salon Rental Agreements

Beauty Salon Rental Agreements Explained

A beauty salon rental agreement is a contract between a salon owner and an independent contractor, typically a stylist or technician, who rents space to perform their services. As a vital component of the salon’s business operation, this agreement details the specific terms and conditions of the tenant’s occupation and responsibilities, as well as rights, compensation, and other legal obligations of both parties. It spells out exactly what is expected of each party, what is included in the premises, and what is not . This can include the cost of utilities, equipment rental, or other considerations.
As the owner of the salon, the terms of the agreement must strictly abide by the laws of your state and locality. For the salon renter, the agreement is important for many reasons. It establishes the "employee" relationship between the parties, and outlines the rights and responsibilities of each party in the agreement. Having a properly executed rental agreement entered into protects both parties in a salon rental agreement.

Components of a Beauty Salon Rental Agreement

Every salon rental agreement should include some or all of the following provisions, provided they do not run afoul of applicable law. As with a traditional lease, the rental agreement should include the term, the rental amount, the responsibilities of the lessee regarding maintenance and repairs, and the security deposit amount. Because of the unique nature of the salon industry, many states have additional requirements for salon rental agreements. In all cases, the salon owners need to be cautious regarding the amount of control they retain over their hairdressers. They should retain a review function only and should not interfere in terms of hours worked or the number of customers serviced. For this reason, salon owners should not tell the renters when they are required to be at the salon, how many customers they should work with or give them any quota requirements. As with any business, excessive control over the hairdressers can convert the relationship from an independent contractor relationship to an employer/employee relationship. In this situation, the salon owner would have certain obligations such as the need to pay minimum wage and overtime pay to the hairdressers.
Perhaps one of the most important aspects of a salon rental agreement is restrictions placed on the hairdresser’s ability to compete against the salon after he or she terminates the rental arrangement. For these restrictions to be enforceable, they must be reasonable in scope. (See Section entitled "Enforcing Non-Competes" below.) Restrictions on the way the hairdressers can market themselves (such as prohibitions on soliciting the salon’s clients), non-circumvent agreements and non-harassment agreements should also be included in the salon rental agreement. Finally, because the salon often provides equipment and supplies to the hairdressers, restrictions on how those items may be used should also be included in the employment agreement.

Legal Aspects of Beauty Salon Rentals

A renter should be well-versed on the legal considerations concerning business use of the property as well as the legalities of the salon operation. The best place to start is with the landlord, who can provide information and necessary documents regarding zoning and local ordinances. Other issues that should be addressed in salon-renter agreements include the following:
Zoning Laws
The landlord will be able to provide information on whether the area in which the salon is located is zoned for specific commercial business usage. Any amendments to land use policy should be made known to the tenant before an agreement is signed.
Occupational License / Business License
In some cases, the salon may have to obtain an occupational license or renewal of a pre-existing business license for the operation of the salon.
Occupation Tax
Certain municipalities may require tenants to pay an annual occupation tax.
Liability Insurance
Insurance policies and requirements are a crucial topic to discuss when it comes to beauty salon rental agreements. Liability insurance requirements are important for salon renters, franchise owners, and even independent contractors occupying space in a salon for their business.
Simply put, liability insurance is the means by which an establishment protects itself and its assets from losses to assets that occur as a result of a liability lawsuit. And while it is not an essential requirement, the proof of liability insurance coverage on the part of the tenant often provides the landlord with that extra layer of assurance that the renter is well prepared and capable of that responsibility.
The basic premises liability policy covers injury or damages to customers who enter the salon. This policy does not cover individual stylist or aesthetician malpractice. Professional liability insurance would cover individual liability as it pertains to services provided in the salon and is often the most crucial of insurance for the independent stylists and aestheticians renting space in a salon.

Negotiating Salon Lease Agreements

Negotiation is a vital aspect of any business deal, but when it comes to renting out space in your beauty salon, it is especially important to the profitability of your business. Beauty salons may rent out treatment space to independent contractors, who provide their own services to clients. The salon owner keeps all the fees from the use of the common areas, such as wash bowls, whereas the independent contractor keeps all the money paid to them for their own services. Because the independent contractor will be using the space for a period of time that could be several months, it’s vital that the terms of the agreement work both for the salon owner and the renter.
Common terms that could be essential to the negotiation include the length of the lease, the cost of rent per month and the amount due when the lease is signed, the utility costs, the amount of rent increase if allowed under the terms of the agreement, whether the renter can make alterations in the space, how many hours per week they must work in the salon, whether they must give notices to leave and what those notices are, what happens if the renter doesn’t make lease payments on time, and how the salon owner can cancel the contract.
An independent contractor who wants to rent space in your salon will also want to negotiate the terms of the agreement. They may want to change their rent amount, their monthly lease payment, the duration of the lease, the number of hours they are required to be present in the salon, whether they have the ability to make changes to the space, how much notice they have to give before leaving, and any other stipulations they may want to negotiate.
Bringing in an objective third party may be helpful to assist in the negotiation process.

Common Mistakes in Salon Rental Agreements

Ambiguous terms in a beauty salon rental agreement can cause many issues for independent operators. It is imperative that both the salon owner and the operator agree on the key terms for use of the space. Otherwise, you may be left with an issue that can easily be avoided by being more specific in the agreement. Some areas of ambiguity are compensation for services, salon hours, continued education and salon expenses.
When a stylist who rents space in a salon has their own client base, the stylist is typically able to keep a percentage of their earnings, but the amount can vary by business. The stylist may think they will keep 60 percent of their pay, when in reality they are really only keeping 50 percent. This can lead to serious issues regarding payment and can result in the salon owner being shorted the amount of money owed. Clearly spell out which services the stylist will be keeping all earnings from and which services are paid out to the owner.
Part of being an independent operator is the ability to set your own schedule. However, this can lead to issues if the operator takes off when their clients were expecting an appointment. Owners may have specific hours when they only allow operators to schedule their clients . This should be clearly stated either in the rental contract, or as an addendum. Make sure the owner defines their operating hours in the contract.
A beauty professional is not finished their education when they finish their training. As an operator, they must keep up with the newest trends, styles, and products. Continuing education is vital in this business. However, salon owners may not think they should have to cover the costs of continuing education for independent operators. As with other variables, this should be clearly defined in the rental agreement. If there are associated costs, outline who is responsible for paying these fees. It is not uncommon for the stylist to cover the costs to attend trade shows and workshops.
Similar to how payment can be a tricky subject, so can salon expenses. If an independent stylist is responsible for cleaning their station and the front desk, they should be compensated for that time and effort in some fashion. Many salons charge a daily or weekly fee to all salon operators to be used for cleaning and maintenance of the salon. In other cases, salon owners charge their operators a percentage of their weekly earnings. Whatever the case, these terms should be spelled out clearly in the rental agreement.

Guide for Owners of Salons Renting Space

Successful salon owners know the importance of creating an attractive environment for their renters, be it an existing salon, a spa, or a new venture by a trusted renter. The rental space is part of the business model, so any real estate decisions must be made with thoughtful analysis of the business, the existing customer base and the risks as well as the opportunities. Maintaining positive relationships with your renter is therefore essential. Once a renter has been attracted to the salon, it is of vital importance to set the terms of the lease in a way that creates flexibility for future business development, is fair to the renter, and Penfold recently saw a situation where former tenants may have had a clearer understanding of how their space use was determined. Taking minor steps at term renewal may be what is needed to avoid a situation where a tenant claims exclusive use of a "workstation," a "treatment room" or a "suite" based on the full costs apportioned to the area, even if it is not contained within the space rental square foot registration (meaning that no rent is paid for that area). Where the term renewal indicates a full apportionment of expenses to the space, extra care must be given to provide notice to the tenant that this amount does not reflect the demised premises. Any assumptions that this is a reflection of the shares apportioned to the fully demised premises precisely should be noted and proper signage prepared so that reasonable notice is given to the tenant upon renewal that the area for which no rent is included in the square footage registration, is not subject to demised premises or exclusive use provisions. The entire nature of the relationship will be affected if the understanding of the tenant and landlord are so divergent, such that it appears the landlord may have intended a different meaning behind the term renewal than what the tenant thought took place. Given how valuable beauty spa or hair salon space is in retail complexes, it is important to properly document the initial arrangements embodied in the term renewal, and how these are to be interpreted for the future.

Advice for Beauty Salons Renting Out Space

For the cosmetologist or beauty professional who is looking to rent a single-purpose space, there are a few things that should be on the rent search list:

Location. With so many people moving, the location of the salon has become paramount. People can travel for miles seeking the right stylist, but it is always better to have your shop located within a reasonable distance from major roads and highways. An unsafe area is an area to avoid.
Signage. It is important that you know what type of signage will be available to you. If there is limited or no signage available, prospective clients may simply drive by, not realizing that you are, in fact , offering the services they need nearby. Having a good location and no signage is like trying to sell a lawsuit without advertising.
Space Suited for You. A space that may be right for one business may not be right for you. Florists and bakeries often use lots of water in the daily performance of their jobs. Most cosmetologists and beauty professionals do not. It is important that you check to make sure that your salon space is suitable for your trade.
Appliances and Equipment. Cosmetologists and beauty professionals require an adequate ability to use shampoo bowls and other appliances in their everyday work. Do not get stuck with a salon space that is not suitable for you.
Forcing your lease. Sometimes, you find a location that is everything you need and want, other than price. It is your prerogative to negotiate the lowest possible rent with a landlord. However, there is an old adage that "the [landlord] that takes your rent gets the most noise." This means that if you get rent abatement, reduced rent or no features, it is a good deal. If you do not pay the usual price for a space, it may be because the landlord knows something you do not. Remember, there is no such thing as a free lunch.