ASHLEY: Welcome to Outgrowth: A Slice of Pro Beauty with your hosts Ashley Gregory.
JAIME: And Jaime Schrabeck. Rental arrangements between a salon owner and landlord, or a booth renter and salon owner, are very common in our industry, but not necessarily done well or legally.
ASHLEY: If you’re currently in a lease or planning to sign one, our guest attorney Amy Toepper will explain how to protect yourself and avoid costly mistakes. Let’s grow together.
JAIME: Welcome back to Outgrowth, Amy.
AMY: Hello. Thank you so much for having me again. Happy to be here.
JAIME: As a reminder to our listeners, you’re a licensed attorney and we’re licensed beauty professionals, so we’ll let you provide the legal disclaimer about our discussion today.
AMY: So all of the legal discussion that we’ll be having today is just general information and guidance, and does not specifically apply to everyone’s situation, and, but I’m happy to consult on a one-on-one individual basis.
ASHLEY: Perfect. Well, we appreciate getting that out of the way, but very important to do. In our first interview, we had a pretty wide ranging discussion, but we’re focused today on rental agreements and leases. We, of course, use lots of different words in the beauty industry to talk about the parties in this case kind of relationship, but what words should we really be using to be uniform?
AMY: I think the parties is appropriate. When it comes to commercial leases, I would probably say lessee and lessor are the official legal words, but the renter and the landlord is also fine too.
JAIME: Amy, in our intro, we are describing different types of arrangements where there may be a landlord and a salon owner where the landlord is not the salon owner obviously, and allows that person to operate their establishment within their space, and then we have arrangements between salon owners and booth renters, can you give us some background on how those things are different?
AMY: So in your first scenario, a typical landlord, what you would see even in a, in a residential setting is an individual or company that owns the entire building, owns the property, owns a particular part of the building, and is paying real estate taxes on that, and mowing the lawn in front, or making sure that things are in compliance with the electricity, and the water, and that. So that’s sort of what people think of in your typical landlord tenant relationship. And then the booth rental though is a little bit different. So this is almost bringing in a third party, sort of down the chain of rental command here, and so the salon owner should be in a commercial lease with the landlord who owns the property, but then in turn, that salon owner then owns, or is in some sort of agreement with the individual artist who is renting a booth or a chair from the salon owner. It’s a separate individual relationship.
ASHLEY: As we start to have all these different branches of agreements and differing terms based on who the artists are, what they do, et cetera, in your opinion, does a rental agreement need a contract, or can we just agree on the terms?
AMY: I think it’s always a good idea to have something in writing. I always say this regardless of circumstance. Under the best case scenarios, even if two people are going into an agreement, and they think they understand all the terms and conditions, and they are 100% good friends, or business associates, or partners, it’s still good to get it in black and white, just so everyone has a really clear understanding of what it is they agreed t. Because even in a game of telephone, for example, what starts out a good intention to get a message across and ends up jarbled at the end of the telephone line, right? So I think it’s so important to get something in writing. It doesn’t have to be long. It doesn’t have to be written in Latin. It can be written in plain English. And even if you are pulling something off the internet, and piecing together some language, and you don’t have an attorney take a look at it, at least it’s something, at least you’re putting something in writing. Because the idea is at the end should there be problems, you can always refer back to that document and say, well, this is what it is that we agreed to, and hopefully come to some sort of amicable resolution. And then God forbid, if it’s really bad, then at least it gives you the legal grounds on which to say, you’re no longer allowed on the premises. You owe me back rent. The way that you’re conducting business is not appropriate, and it says so in the contract, therefore our agreement is terminated. So I think it’s crucial, even under the best circumstances.
JAIME: You know, as well, Amy, there are lots of contracts floating around on the internet and we often see posts asking for someone to share their contract. What are some of the pitfalls of downloading something, or borrowing it from someone else, and applying it to your business?
AMY: Well, the difficult part about it is that you just don’t know what you’re getting online, and for someone who’s been looking at agreements, and legal issues, and provisions, and clauses for almost 20 years now, you know what you’re looking at. You know what’s good. You know what’s not. But for the average person, you don’t. If someone laid out five different pair of shears in front of me to say, tell me which one’s the best to use. I couldn’t because I’ve never cut hair. So it’s your area of expertise, and the more that you can stay in your lane, right? The safer you’ll be. So when it comes to legal issues, especially with commercial leases, I think there are so many legal pitfalls. I mean, especially with the tenant and landlord relationship, where the salon owner is working with a landlord on a space, there is quite a bit that goes into it. And so we want to just make sure that before you pull something off the internet and use it, it has what you need. That’s really the super important part. As far as the salon owner and then the individual booth renter, again, you can pull something off the internet and hope that it’s gonna work for you, but it’s not one size fits all. And I wish that it were, and I wish that it was a little bit easier for folks. But your relationship between the salon owner and the booth renter is really individual and unique as to how you’re classifying that individual in how they’re coming onto your property, who has control. So it’s trickier than it seems. So I think that getting something that’s properly suited for your individual business is really the best.
ASHLEY: You mentioned the wide and wonderful world of commercial leases. It’s something that we see a lot, of course, and the difference between maybe a residential lease that we would have more experience with are some of the terms like net, triple net, and you’re dealing with usually longer lease terms with a minimum of five years. What are those terms like net and triple net mean? And really what’s the difference between them?
AMY: The difference between them and here are the key takeaways. Net leases involve the tenants paying one or more additional expenses in the commercial real estate arena. In a single net lease, the tenant, for example, pays a lower base rent in addition to property taxes. So a tenant is paying the individual rent, and then they’re also paying a portion of the landlord’s property taxes. A double net lease includes the rent, property taxes, and insurance premiums. And then triple net leases will include obviously the, the base rent, property taxes of the landlord, insurance, and then in some instances maintenance cost. So those characterizations can be a little bit tricky. And I guess, I wouldn’t focus too much on whether you have a single, double, or triple net lease as much as looking at the individual provisions and trying to really tease out what it is you’re responsible for. And in the commercial lease arena, I think it should be no question that you should have an attorney review that, because all of those little pieces are not little pieces at all, actually. They’re extremely detailed and a bad commercial lease can make or break a business, quite frankly.
JAIME: In the first five years of my career, I was a booth renter and I actually churned through five different salons in my first five years, I’m not necessarily proud of that, but I don’t think I was anywhere where the lease was longer than two pages as a booth renter. The first time I signed a commercial lease, I was in a situation where that was treated almost like a residential lease. It was very simple, just a flat rate every month. It didn’t change for eight years. It was a wonderful arrangement. Then I moved into a boutique shopping center, and the difference between that lease and the previous one was about 50 pages.
AMY: Yeah, they are widely, widely different in their complexity. And in that complexity, it can really just be filled with just tremendous tiny provisions that unless you’ve looked at a commercial lease before, many folks will not be able to identify what the possible issues could be. And they’re much harder to break. In the sense of like a booth rental for a salon owner and someone who’s, you know, renting a chair, or a space, or something like that, you still want to have a contract and you still want to have your provisions in place to protect each of the parties. But if someone needs to leave sooner than the contract expires, it’s negotiable because now you’re dealing with one-on-one. You can be a little bit more flexible. You can be a little bit more nimble. But these commercial landlords, their property taxes are due regardless of whether you stay or you go. And so there’s more of an interest in their part to make sure that they have a guaranteed source of income coming in for that space, and the longer they can lock you in, the better off they are. So it’s harder to get out of those or renegotiate those. So that’s why I really caution people have a lawyer look at some of those terms.
ASHLEY: So we do know that there are variations state by state. Some states like New Jersey don’t allow booth rental. When you’re navigating around those restrictions, how important is classification when it comes to maybe having to defend this document?
AMY: So the document that we’re talking about now is between the individual artist and then the salon owner. And so I think the primary question that you have to ask at the outset is, is this individual that I’m bringing on to my premises, am I going to characterize him or her as an independent contractor or as an employee? And that really should be the first question. That’s really the first line of question, cause what you’re talking about now is, how is this person going to get paid and how, as the salon owner, am I required to pay him or her? As an independent contractor, what we’re talking about is someone who comes into your salon, rents a chair, rents a booth, operates truly independently, is able to come and go as they please, uses their own equipment, sets their own schedule, builds their own clientele, and truly independent as if you were to hire someone to come to your own home and trim your trees or redo your driveway. Really someone who’s an independent contractor, an independent party that can go on, and make money somewhere else down the street, and is not tied to you or controlled by you in any way. So that’s an independent contractor. An employee, coming into your salon, is someone who you control. So if that person is required to be there from nine to five, eight to six, noon to nine, and that person is using your equipment, and that person is using products that you purchase for shampooing, and conditioning, and color or nails. That person has to follow the work rules on your premises. That person has to follow the employee handbook guidelines. The more control that you have over that type of individual, the more that that person should be classified as an employee. And that’s a very, very important distinction because what happens is, if an independent contractor is brought on, but should have been classified or treated, and that’s what we talk about with classification. It’s just a fancy word for treated. If that person should have been treated like an employee and paid like an employee, then that misclassification can really bite the salon owner and really cause a lot of problems, which is money on the line. And that’s what we’re talking about. It’s a, money on the line for paying that person and incorrectly. So that’s really the main analysis that we’re talking about.
JAIME: We have a future episode in us all around that issue of classification, and we hope that you’ll be able to come back for that, but looking at the variations from state to state, is there much difference in terms of the rights that the lessor has versus the lessee?
AMY: So now we’re kind of shifting gears back to the commercial contract relationships. So now we’re talking about the salon owner and the landlord. Both parties, in every state across the country, have different rights when it comes to commercial leases, just like residential, a commercial lease tenant enjoys the right of quiet enjoyment. The landlord can’t just bust in unexpectedly. You should be able to enjoy the use of your space without a lot of interruption, without somebody blasting loud music next door. Certainly the obligation to have a space that doesn’t have a leaky roof, and that the electricity works, and all that kind of thing. And so there’s rights that both parties have in this agreement. Part of the main distinguishing factor between a commercial lease and a residential situation is, especially in this age of COVID, is that the federal government or state government has stepped in to say, we are putting a moratorium on evictions until such and such a date because of the conditions. That unfortunately has not applied in the age of COVID, which makes it even more important to pay close, close attention to your commercial lease. Because I have fielded a lot of phone calls as to, my business has shut down. I am by state order not allowed to open. How do I pay my rent? And we’ve had to negotiate, renegotiate, amend agreements, and, but the contract stands, regardless. So you have to be very careful about what happens. So there’s, you know, there’s rights for both parties, but what’s most important is what the contract says and what kind of wiggle room a tenant has within that agreement.
ASHLEY: So in those situations, what recourse or what course of action, I guess, does a salon owner have, or even a booth renter, if they can’t afford to pay their rent any longer, or if they do decide to close their business, given COVID home orders or even just in general?
AMY: So in both contracts, we negotiate language for our clients that provide for certain, maybe not necessarily outs of the contract, but opportunities for the parties to renegotiate, or be excused from performance under the contract. And when I say performance, that performance means paying my rent, given certain circumstances. So what has largely been seen as boilerplate language by attorneys for many years, all of a sudden has come into the main stage and we’re reviewing and drafting a lot of what they call force majeure provisions. Force majeure is just a fancy name for act of God or things outside of my control. And so these were provisions in contracts which maybe folks didn’t pay a lot of attention to because if there was an earthquake, people understand. If there was a massive flood, people understand. It happens. It ends, and then everybody starts rebuilding. Here in the case of a pandemic, we just don’t really have any other frame of reference as to what to do. So that type of language is important in any kind of contract now to say, hey, if there is something that is so unbelievably outside of my control, I’m not going to be responsible for this contract. So that’s one option. The other option is I agree to pay 12 months and at the end of 12 months, I have an option to renew. Like, you know, let’s say that’s between a booth renter and a salon owner, and so we’re keeping the terms of the agreement short. So that worst case scenario hits, maybe you want to wind down your business, and you’re now only on the line for three months left in the contract, or four months left in the contract. So keeping the lease term short or at least appropriate for that particular relationship. A termination clause, can we both agree that either one of us can walk away from this contract with 30 days notice? Whether something goes wrong or it doesn’t, I just need to get out of the contract and that’s something we try to negotiate. That all is probably going to be a little bit easier in the booth rental scenario. Commercial leases are a little bit tougher because now we’re talking about, quite frankly, just bigger sums of money.
JAIME: If you were consulting with someone who was interested in signing a commercial lease, as the lessee, typically, how long of a term do you recommend they negotiate? Is there some sort of range?
AMY: Sure. So, you know, this is obviously based on your individual circumstance, and the availability of space in the city that you’re looking, and what the landlord wants to do, and what kind of position the landlord is in. So just like a residential real estate, if it’s a buyer’s market or a seller’s market, in some ways, that that likewise applies to commercial leases. Is a landlord, desperate for getting a tenant, or is it really difficult to get into a particular space? So that negotiation leverage, that leverage that either party has, is going to be different for each situation. That being said, if a salon owner is coming to me, and presenting me with a lease for 10 years, let’s say, for example, I’m gonna just first by having a real conversation about, where do you see yourself in 10 years? Because 10 years is a long time. And if that lease agreement doesn’t provide for any other option to renegotiate the terms, a termination agreement, a force majeure agreement, I’m going to want us to try to say, hey, can we do five years with a five year renewal? Can we do a five years with two year renewal, or year to year? I would just caution my client as to whether or not they understand that committing to something, committing to a payment for 10 years, is a big undertaking. So before you sign that, I would just kind of want to frame that for the client. Is it impossible to break a lease? No, people do. People pick up and move. Are leases renegotiable? Yes, they are. And in many cases it depends on the relationship you have with a landlord. But even getting into a five year lease, if the relationship you have with your landlord is great, but two years into it, that landlord sells the property, what’s the new landlord going to be like? There’s just a lot of unknowns, right? So we look at the totality of the circumstances and try to put in language that protects the lessee.
ASHLEY: In your last answer, you mentioned leases potentially being renegotiable. What are some of your top tips for approaching that situation and getting through it with either a compromise, or the most important parts of what you need in order to make that lease tenable for the rest of the term?
AMY: Sure, so like I had mentioned, it’s really a, it’s a dance, right? It’s a, it’s really truly a negotiation dance. And it comes down to what leverage both parties have. How desperate is the landlord to rent the space? How desperate is a tenant to get into that space? And vice versa, and all of the other circumstances surrounding that particular situation. What I try to do is say, make a list of here are the absolute musts that you should get in this commercial lease. So in order to break even, in order to come out ahead, in order to make sure your business doesn’t go under, here’s where the numbers have to be. So even in slow months, let’s say COVID excepted, let’s say that’s an exception. But even in regular slow months, are you still going to be able, with the least amount of clients that you service, to be able to cover your lease payments? And so that’s kind of a first starting ground. You always want to take a look at the money. And at the end of the day, what, when you’re writing a check, are you going to have enough in your business bank account to write that check? So that’s really probably the first realistic place of negotiation. The next thing is, what is it that you want? How long do you want this lease term to be? Do you see yourself staying in one place for the next 10 years? Do you want to kind of try something out? Are you not really sure about this up and coming developing neighborhood and, but you’re giving it a shot? And so next, we’re going to kind of look at the lease terms. How long do you want it? How long is the landlord asking for? And can we come up with some kind of compromise? So let’s say the landlord is asking for five years. You want to try for two. Maybe we meet in the middle and sign a three year lease with a one year renewal or a two year renewal. So, that’s probably the next step. Those are the core elements. I think then what comes next is really a varying level of complexity based on the type of space you’re moving into. If you’re moving into a space that’s brand new, that’s been set up for sinks, and faucets, and electricity that’s going to be pulled from a salon and good ventilation, I’m worried about that less, right? You’re already set up in a space that’s solid that’s not going to have a lot of structural problems or other problems. What concerns me more is when people call me up and say, I’m moving into the space. I got a great deal, but it needs to be completely gutted and who pays for it? And that becomes a little bit more tricky when you’re talking about, either structural work on a space, putting in new electricity. What’s the electrical service that exists? What do you need to be in there? How old is everything? Oh, we need to run new pipes or new wires. The AC is on its last leg. So those are the types of situations that become more complex and you have to be really careful about who’s agreeing to pay for what. That worries me a little bit, when I see, oh, hey, I’ve got a great space. It comes at a good price, but I have to do a gut rehab. And then what other kinds of restrictions are in the commercial lease? Let’s say you’re in there. There doesn’t have to be a lot of things that are done. If you want to paint the wall a different color, what does that mean? Do you have to get approval all the time? If you need to nail something into a wall, but that thing can later be taken off the wall with you, do you have to get approval or can you do it on your own? What does the signage look like? What kind of parking spaces are you getting? Is there a common area in the building that you’re going to be responsible for any kind of payments on? So those are just really a handful of sort of the detail that come with things to look out for for a commercial lease.
JAIME: Don’t get me started on tenant improvements. My goal has always been to leave a space in better condition than what I found it in, but I have a question about when you’re first interacting with someone who you’ll be having this legal and financial relationship with, do they have the right to ask you for a credit check? And do you have any recourse in trying to do research on what their financial standing is?
AMY: Yeah, that’s a great question. It’s kind of this area in law that we call due diligence, right? So that’s great. I’m a landlord. I found someone who wants to rent my space, or I’m a salon owner and I found a space to rent. Well, that’s, that’s great, but in some ways that’s really only the beginning, right? Next comes the lease. But both parties really have to do their due diligence, and what does, what does due diligence mean? That means researching the other party to see as much as you can find out about them. Okay? So when was this building purchased? When did the landlord purchase the building? How long has he or she held it? How long are the average leases? Why did the last tenant leave? You know, sometimes that stuff is not always readily available, but there’s absolutely nothing wrong with going and knocking on another business and saying, hey, can I talk to the owner? How’s your experiences here? Has the landlord given you any trouble? Has he abated any rent in times of catastrophe like COVID? Is he or she reasonable? Can you work with them if something goes wrong? If something goes wrong in your space and you alert them to it, are they pretty responsive? So that is all part of basic due diligence on the part of the tenant. On the part of the landlord, yeah, they can, certainly run a credit check on you. When probably even more important is that they can ask you to personally guarantee the commercial lease. And what that means is, I signed a five year lease. If my business goes under, I personally as an individual am still responsible for paying this lease. And so that’s a little bit more tricky and I would want to read those provisions pretty carefully because I understand the landlord’s point of view that, hey, I don’t know you or your business from Adam. Yeah, you can make all the promises in the world, but when I need to come after payment for the lease term, and you’re not there anymore, I have to be able to go after you personally. A lot of landlords ask for a personal guarantee. I think it’s hard for a business owner who isn’t hugely established to get away with not giving some sort of personal guarantee. So, what we try to do then is say, okay, that’s fine. I will give you a personal guarantee, but that’s not going to be for the entire length of the contract. So if at the end of fifth year, my business goes under I myself personally will no longer be on the line. I’ll personally guarantee this for the first 12 months, for the first 18 months. And so what you’re telling the landlord then is, you’ll get your money, without a doubt, for sure for 18 months. You will continue to get it for the full five years. But if there is something that happens, you can’t come after my house, my personal checking account, my personal savings account, because the personal guarantee has ended. And I’ll say this, even under the best circumstances, when both parties do their due diligence, things change. And five years is a long time. Ten years is a long time. Circumstances change. Neighborhoods change. Businesses change. And so you would hope that even with the best foresight, that both parties are at least reasonable enough to negotiate with each other.
JAIME: Amy, does having a corporation spare you from that personal responsibility?
AMY: Having a corporation spares you from exposure if something goes wrong in your business. So, let’s say you set yourself up as an LLC or a corporation. You maintain good standing within your individual state. You’re paying your taxes. Your assets are separated. You’re not co-mingling money. Then that’s going to protect you from someone who comes on your property and slips and falls, or maybe has a bad reaction to a color chemical that you’re using. So that’s all well and good. Again though, from a lease perspective, what you’re saying to a landlord coming onto their property is, over the course of the next five years, I may be agreeing to pay you half a million dollars, $250,000. And as the landlord, he, or she’s like, great, but I don’t really know your business. So you’re going to have to give me something more. And so the personal guarantee is really almost collateral, quite frankly. It’s sort of an easy way to look at it. And you want to give as little as that personal collateral as possible. But sometimes it can’t be avoided. And it’s understandable I think to some extent. You just want to limit that as much as you can. And what that personal guarantee means that if your business ends, you go bankrupt, there’s no assets to go after. If you’ve made a personal guarantee for 12 months, that still gives the landlord to say, hey, you yourself as an individual are still on the hook. What I don’t want to see is a personal guarantee for 10 years, because now you’ve really sort of backed yourself into a corner, and then even if the company goes bankrupt, and you close your doors and shutter, you’re still on the hook personally. So we don’t want to see that.
ASHLEY: Are there any items or terms that cannot be added to a lease agreement, but might try to be eeked in?
AMY: The thing about contracts is that so long as it’s not illegal, or you’re not breaking any laws, you can put anything you want in a contract if both parties agree to it. I think what’s probably the bigger question there is if you’re reading a contract and something strikes you as odd, or funny, or unfair, then I think we have to take a look at that provision and say, this doesn’t seem right to me. This seems like you’re shifting a lot of the burden of this property onto me and I shouldn’t be responsible for it. If there’s a fire, I shouldn’t be solely responsible for the damage. Obviously, no illegal type of provision is going to stand in any contract, but what we want is to make sure that a landlord is not trying to shift unreasonably a burden on to the tenant that the landlord should really be responsible for. And here’s an example. just to kind of make it a little bit more concrete. Let’s say I’m a salon owner. I’m looking at a new space. I really like the new space for location, but the location has two floors and there is no elevator. The building is old. It’s going to cost me a hundred thousand dollars to put in an elevator to make it ADA accessible and compliant. So the landlord can say, well, take it or leave it unless you pay to put in a elevator. There’s nothing else I can do. That’s not right. And quite frankly, there’s an example of something that is illegal. When you’re providing a public space, the landlord and the property owner is responsible for making it ADA compliant. And so, what do we do in those situations? How do we negotiate that? Quite frankly, the salon that I personally go to was someone’s home, large home, at some point about 75 years ago. There is no elevator, obviously. It was too cost prohibitive to put one in. And so any service that is offered on the second floor can be offered on the first floor and that’s how they worked around it. And there’s a ramp to get in so that if you can’t take the stairs, you don’t have to. Old properties can be a little bit more tricky. You just have to be a little more creative.
JAIME: Amy, are you finding that there’s a lot more around accessibility these days and is that written into leases?
AMY: Yes. Yeah. ADA compliance is a legal obligation on the part of the property owner. That if you’re going to have what they call publicly accessible space where people are coming on to purchase things or have services performed, then that has to be disability compliant. Where ramps if it has to be, elevators if there have to be. Now you’re getting into the area of almost local regulations too. Do you need to go to the city council and see what it is you have to do? Do you have to get special permission? But that’s a big piece of it. And ADA compliance is something that the property owner is responsible for and the landlord should not push that responsibility down to the tenant.
JAIME: We talked earlier about liability. Is liability insurance built into leases? The property, I should say.
AMY: So both parties are going to have some kind of insurance. The landlord is going to have some kind of property insurance. What happens in the case of an earthquake? What happens in the case of a fire, a flood, all that sort of thing? The tenant is going to have insurance for what happens within the space that they have control over, and so both parties are going to have insurance. What’s going to be written into the lease agreement is a provision that acknowledges that, that both parties are going to have insurance, that they are going to show certificates of insurance to each other prior to entering into the lease. And that probably, you add me as an additional insured. I add you as an additional insured and we work with a good insurance agent to make sure we’ve got the right coverage.
ASHLEY: I know, we all tend to learn best from the mistakes of others, unfortunately, but what are some of the biggest mistakes, or instances where hindsight is 2020, that you’ve personally seen small business owners make when they sign or, in some cases, don’t sign a lease?
AMY: So I would say that some of the red flags that come up for me where, where clients have made mistakes, or tenants have made mistakes, are leases that are too long, leases that are 10 years plus. Their individual business changes, and they can’t get out of it, and the landlord is not willing to negotiate. That’s probably the hardest situation. And then you’re stuck paying a lease on a business that you no longer have. So that’s a tough one. And I’ve seen that a couple times. Another thing is construction within a space. That is so tricky. I’m coming into your space. I want to change it. I want to gut rehab it. Who’s contractors are we gonna use? Does one party need to approve the contractors? Who’s going to pay for it? Who’s putting the money up front? How is the landlord going to compensate the tenant for those improvements? That is tricky. And that’s where I think people get into trouble even with a written contract. I know this is what we agreed to, but this is not my understanding, and then, you know, it all leads to litigation and that becomes expensive. So that piece of it is probably another big part of it. Also too, another big part which is kind of simple, something that people look over is, as a tenant, will you have the ability to sublease, and if so, do you need the landlord’s approval to do it? So we want to take a little look at those because if you’re backed into a corner with your business, and you really need some help, and you need to sublet part of your space to another business, are you gonna need the landlord’s approval? And if you do, we’re going to make sure that that landlord is not unreasonably withholding that approval.
JAIME: Is it possible that a landlord or a salon owner that’s renting to booth renters, is it possible for them to put restrictions on the types of services, and in the case of coronavirus pandemic, can they restrict based on health orders, whether or not you operate in your space?
AMY: So I mean I guess probably moving backwards, to answer the first question is, regardless of what happens, if there’s a state order that says that any business or every business has to do something, then everyone has to comply. And so if that means that the person renting a chair has to cease business for a while, then so be it. If that means that the salon owner as, you know, in their entire salon has to shut down, then so be it. And unfortunately in that circumstance, that landlord still has to pay property taxes. There’s no shutting down of taxes. And so in this particular instance, that’s a necessity and everybody has to follow that.
JAIME: Is it possible for a landlord to put limitations on the types of services that are offered within your salon or, going down the chain, a salon owner to put limitations on what the booth renters offer as services?
AMY: Yes. So that is possible. Most of the time those provisions, or those limitations rather, link up with what is zoned for that particular property, whether or not you can have a ba,r or a liquor license, or a salon or so, you know, the local commercial zoning is going to play some role in that. Also too, then the next step is, what is the building capable of doing? I had a client that was a artist and she owned pottery paint business, and she wanted to put a kiln in for the pottery, but the building just didn’t have the electrical capacity to do it. And so the landlord had restrictions on what she could put in because it just, this electrical service wasn’t there. Other than legal restrictions, or structural restrictions, or zoning restrictions, that’s really the extent of how landlords can put limitations on a tenant’s ability to occupy a space. Hazardous substances, how are you going to get rid of them? Make sure that you’re not going to spill any hazardous substances on the space. So it really comes into legal issues, safety issues, zoning issues, and those are going to be the types of restrictions that you have.
ASHLEY: What happens if the landlord happens to sell the building in the middle of your lease term? Does the new owner have to honor the lease?
AMY: Most of the time, yes, and that’s another provision in the commercial lease, and that’s going to be sort of what a landlord will negotiate, and what we’ll likely see that if there is sometimes called a change of ownership. A landlord is going to likely be a company. That’s less likely going to be an individual. So, Acme Business LLC, the name of the landlord’s company, is going to be entitled to change ownership of the property at any time as it sees fit, without explicit approval from any of the tenants. That new property owner will assume the responsibility of the payments of the tenants then. And so just because there’s a change in property does not mean you can get out of your lease.
JAIME: Thank you so much, Amy. We have learned so much more about this topic just listening to you, and I know that I will be consulting you one-on-one the next time I sign a lease. For listeners right now who may be thinking that they want to renegotiate, or perhaps they are facing a new lease situation, where can they reach you for some more one-on-one attention?
AMY: Absolutely. So please feel free to reach out to me. I am at AMT Law on Facebook. Amtlawgroup.com, that’s the website. You can reach out to me on Facebook, and message me, or email me, and then also at legalinabox.com.
ASHLEY: Well, thank you again, Amy, for your time. I know that we would love to have you back to get really into the nitty gritty of even more of the never ending legal issues that seem to pop up when you own a small business. So we hope that you’re amenable to that, but thank you again for this, and we appreciate your time.
AMY: Absolutely. It’s always a pleasure ladies. Thank you so much.
JAIME: Speaking of one-on-one attention, Ashely, we launched Outgrowth Insiders last week and the response has been incredible.
ASHLEY: I can’t believe how many amazing Insiders are already connecting with us in the private Facebook group. And I can tell you that the group we have is motivated, educated, and ready to hit the ground running towards their respective goals. We have one more week left to sign up, so if you’re on the fence, check out outgrowthpodcast.com/insiders to see all of the details.
JAIME: The door will be closing soon and we don’t want to miss you.
ASHLEY: Cause you can’t sign up again until 2021.
JAIME: So much happens every week, Ashley, I can’t even imagine what could happen in a couple months.
ASHLEY: Life changing, life changing things.
ASHLEY: All right. Well, as always you can follow us and comment on recent episodes on Instagram at @outgrowthpodcast.
JAIME: Until next week, be smart.
ASHLEY: Be safe.