Almost four years ago, Nikki Adams was in the midst of finding gym space. When she came across a 12,000-square-foot facility in a retail center, it seemed like a good fit.
Adams had forged a good relationship with the owner of the building. So she decided to move forward with her plans and opened her gym, Cave Training in Santa Clarita, CA.
At first, everything ran smoothly. But unfortunately, the property owner passed away in 2021. The retail center was given to his family, who decided to sell it. It was at that point that Adams realized she hadn’t done her due diligence when negotiating her lease. There was nothing to protect her in the event of a sale, nor had she sought legal advice.
“What protection would I have? None,” she said.
The Aftermath.
When the sale of the retail center went through, Adams’ costs immediately went up by $400 a month. She had entered into a triple net lease (triple-net or NNN).
The triple-net is just one type of commercial property lease. It essentially means that the tenant or lessee is responsible for all expenses of the property, in addition to the cost of rent and utilities. These things can include everything from maintenance to real estate taxes and building insurance.
For Adams, this meant that her taxes, insurance and maintenance costs all went up. And because of the triple-net lease, the building’s new owners had the right to increase her monthly fee.
Since then, the monthly fee has continued to increase. Adams said it’s ultimately crippling her ability to grow her business. Her lease is up this May, and she doesn’t think it’s financially feasible to stay in her space.
“There is no end game with these yearly increases,” she said.
Six Tips for Leasing When Finding Gym Space.
Adams is hoping to help other gym owners to avoid the mistakes she made when finding gym space. Here are six suggestions she shared.
1. Build In Upgrades.
If she could go back in time to when she was finding gym space, Adams would have built tenant improvements into her lease. Instead, she settled for two months of rent abatement. While this gave her time to do some of the improvements herself, she now knows that including upgrades would have been more beneficial.
It’s worth noting that we’ve seen this advice from several fitness business owners. Recently, we talked to Zach Forrest about the dos and don’ts of negotiating a gym lease. Forrest, built in $40,000 to $75,000 of tenant upgrades into three of the leases he’s signed for the five gyms he’s owned. Ultimately, he said these upgrades made a huge difference for his businesses.
2. Plan Ahead with a Sales Clause.
One of the biggest lessons Adams learned when finding gym space was to ensure you have a detailed plan for what would happen in the event of a property sale. She said this could affect a variety of costs, including the taxes you’ll be responsible for paying.
3. Include a Noise Ordinance.
Especially for CrossFit or functional fitness gyms that tend to have a higher level of noise, this should be considered when negotiating a lease.
“You need a protection in the event of noise complaints so you can continue to run your business,” Adams said.
4. Get Legal Help.
Adams now realizes the value of having a professional in your corner when it comes to all things legal. Once again, she said if she could go back in time, she would’ve asked for help. Especially with lease negotiation and protecting her in the event of a sale, among other things.
Pro Tip: When it comes to liability, leave it to the professionals. Forrest recommends hiring a lawyer to help you sort through the details, and recommends Matthew Becker with GymLaywers.com. Becker is a gym owner himself and therefore understands the fitness business industry.
Further, if you’re currently in the process of finding gym space, check out these four legal steps for opening a gym.
“Long story short,” said Adams, “hire someone who knows gym real estate, who knows how to handle the ‘what ifs.’”
5. Stay Away from Retail Space.
Though Adams knows that her experience was unique, she cautions gym owners agains signing a lease on retail space.
Generally speaking, there are just more rules and limitations when it comes to retail space. One example is limited ability to train outside, especially at peak hours. Further, there may be limited parking, hampering a gym owners’ ability to scale the business as planned.
6. Avoid the Triple Net Lease.
Adams feels strongly that fitness business owners should avoid triple net leases when finding gym space. As she puts it, “Triple net leases are silent killers for small business.”
She went on to explain, “I think it’s fair to say in this economy, even with a business that is healthy, the constant increase of triple-net is a horrible game plan.”
Having this type of lease has resulted in an exponential increase of her monthly costs. In addition, those costs increase even more year over year. Ultimately, this makes it incredibly difficult to keep up with overhead, no matter how much she’s able to increase gym revenue.
At the very least, Adams suggested that gym owners ask for a cap on a triple-net leases. That way your cost increases are at least a bit more controlled.
The Future of Cave Training.
“I have an incredible community,” said Adams. “I have built one hell of a business. But this is probably going to close me as a brick-and-mortar facility because I didn’t know what I didn’t know.”
As of right now, Adams is hoping she won’t have to shut her doors, but she won’t go down without a fight.
“I’ll start looking for a new space next month,” she said. “I believe in this mission and this community.”
Pro Tip: Once you’ve found your perfect gym location, it’s time to work on running a successful fitness business! Book a demo with our team today to find out how PushPress can help to save you time and level up your business.
