CrossFit Risk Rentention Group

An important aspect of being a CrossFit affiliate that often gets overlooked involves gym leases and negotiations. It’s not enough to pull out all the stops to find the right facility and location for a CrossFit gym. There’s also the art of negotiation to consider before a lease is signed and keys are exchanged.

Regardless of how remarkable any location seems; the lease could be a deal breaker if the terms are not tenant oriented. It’s important to remember that commercial property owners want the best bang for their property.

That’s not necessarily bad news for CrossFit affiliates looking to open a training facility with minimum out-of-pocket expenses and headaches. But it does make having a thorough understanding of CrossFit affiliate gym lease terms and performing due diligence necessary to negotiate the most favorable lease commercial lease agreement.

For experienced professionals who are in the process of opening multiple locations, this may seem like a cakewalk. But for those just starting out or unfamiliar with CrossFit affiliate gym leases and negotiations, check out the following pointers from CrossFit RRG.

  1. Rentable vs. Usable Space
  2. Excessive Loud Noise During Business Hours
  3. Subletting Considerations
  4. Insurance Requirements for Your CrossFit Gym
  5. Define CAM and Triple Net Fees
  6. Base Rent vs. Gross Rent
  7. Lease Length and Renewal Policy
  8. Heating and Cooling Repair and Costs
  9. Wall-in and Wall-out Maintenance: What the Landlord Has to Cover

Rentable vs. Usable Space

Location matters. And while the thought of owning a CrossFit affiliate business is exciting, it’s best to keep an open mind in terms of single-tenant and multi-tenant locations. It’s not practical to simply visit a location or building and immediately enter into a lease without knowing the difference between rentable and usable space, what your business needs are, and some additional considerations to help you avoid mistakes when negotiating a CrossFit affiliate gym lease.

Usable space is the amount of square footage your gym will occupy, minus any commonly shared areas of the facility. Shared means areas that other building tenants use, such as public corridors, hallways, reception areas, restrooms, etc. and includes the whole floor area within the walls of the space you plan to lease.

Pay attention to the square foot amount of usable space documented in any CrossFit affiliate lease to determine if the facility in question is the best size for your business.

Rentable space refers to the total amount of space (square footage) your facility will occupy or lease and includes your portion of rent for common-use spaces. This is also known as occupancy costs.

Your gym lease is determined by usable square footage, not the square footage your CrossFit box occupies or its occupancy costs. It’s important not to confuse rentable costs with usable space fees and to realize that these expenses usually differ tremendously depending on the landlord.

Bear in mind that with some commercial landlords, these charges are obligatory. Even so, failure to consider them when calculating a cost-effective and practical budget and choosing a suitable facility can make or break any business, especially in the fitness industry.

Excessive Loud Noise During Business Hours

Noise and gyms go hand-in-hand. Yet, noise disturbances and vibrations from dropped gym equipment which can be felt by neighbors can cause complaints and issues can be very difficult for gym owners to negotiate with landlords. Also, vibrations from dropped equipment can be felt by neighbors which can cause complaints.  In most commercial leases, the rental terms tend to favor the facility owners, not the tenants.

Therefore, it’s always in your best interest as a CrossFit affiliate to negotiate excessive noise provisions into your commercial lease for protection in case noise complaints or related issues crop up.

Additional measures CrossFit affiliates can take to minimize potential noise issues that may violate their commercial lease agreements include choosing a ground or subfloor space, soundproofing, and negotiating a right-to-cure clause for noise violations.

CrossFit Affiliate Gym Lease

Subletting Considerations

Subletting is something to consider, especially if you plan to sublet rent a portion of your facility to trainers, massage therapists, chiropractors, or any other interested parties in the future. It’s best to negotiate provisions for subletting into your CrossFit affiliate gym lease.

Adding a sublease clause helps to offset the cost of rent, avoid early termination or eviction, and prevents CrossFit affiliates from entering into unfavorable leases that could bankrupt or shut them down.

It’s common practice for fitness business owners to request higher lease premiums, shorter lease terms, and amenable sublease terms to gain greater flexibility and peace of mind in their box facility rental/lease agreement.

Insurance Requirements for Your CrossFit Gym

Gym insurance is a must-have for CrossFit affiliates. Besides affiliate liability insurance, CrossFit affiliate owners must have proper insurance coverage that meets their facility’s zoning requirements and lease terms, as well as provides liability protection that covers their gym and themselves from loss, damage, or injuries that involve their business. This type of insurance does not replace the kind of personal and professional liability coverage required of all CrossFit affiliates and professionals.

It’s important to read over commercial lease terms carefully to learn of any additional insurance requirements or limits necessary to honor the terms of the agreement.

When reviewing the insurance provisions of the lease, do so carefully because it defines what information you’ll need to share with your landlord, how it will be used, and the criteria for filing and managing claims. Failure to maintain proper insurance coverage is a lease violation that could result in termination.

CAM and Triple Net Fees

Triple net fees, also known as NNN expenses are included in some commercial lease agreements and include three types of operating expenses: common area maintenance costs, landlord insurance premiums, and property taxes. Common area maintenance (CAM) fees are related to building occupancy and maintenance.

Negotiating triple net and CAM fees can be tricky, especially for novice affiliates. An affiliate gym lease that includes triple net fees can be advantageous to those seeking to minimize their tax liabilities while locking in savings with a multi-year lease.

Triple net leases generally include costs associated with property taxes, building insurance, or maintenance.

In many cases, non-triple net leases do not include any other expenses involved with leasing the facility and operating a gym. Remember, with a triple net lease, tenants are responsible for all expenses related to occupying, using, and maintaining the facility or property.

When evaluating the affordability and practicality of any CrossFit affiliate gym lease, pay close attention to the lease or base rent rate. This premium is most often based on the total amount of rented square footage.

Base Rent vs. Gross Rent

Base rent or the monthly lease rate is exactly what it sounds like, the baseline price of renting the building. Because it does not include utilities like electricity, heating, cooling, or water, it can be difficult to control your operational expenses.

Gross rent, on the other hand, is the monthly base rate plus all net operating expenses, such as insurance premiums, facility repairs, maintenance, etc. Some commercial landlords prefer gross rent because it allows them to slide the operational costs of using their property onto the tenants.

In most cases, non-base rent expenses are capped. However, there are CrossFit affiliate gym leases that require tenants to share utility costs with other building tenants and can make leasing a CrossFit affiliate gym more expensive.

Tenants could incur financial penalties if they overlook this in their lease. Consider this: While gross rent leases are often beneficial for new affiliates just starting out, they don’t offer as much control or flexibility as base rent commercial lease options. Also, these costs can quickly add up, especially if other building tenants fall behind in their lease obligations.

To determine which type of lease option works best for your CrossFit affiliate gym business, calculate a budget for all operational costs and lease premiums before carefully weighing the pros and cons of base rent vs. gross rent.

Lease Length and Renewal Policy

Make sure your CrossFit affiliate gym lease clearly defines the length of your lease and includes a renewal and termination clause. Ideally, you should aim for a lease up to two to five years in length to give yourself sufficient time to grow your business.

Steer clear of at-will or short-term commercial leases if possible because they offer little flexibility and protections for tenants. At-will/short-term CrossFit affiliate gym leases often become untenable because there’s no way to keep landlords from hiking rental costs, changing the terms, or giving proper notice of termination.

Even if you’re not sure if you plan to keep your business in the same place after the initial rental term is up, it’s beneficial to negotiate the renewal policy before signing any facility rental agreements. It’s standard practice for commercial leases to increase upon renewal. The ball is in the property owner’s court as far as how much to charge upon renewal.

But tenants who negotiate a renewal option into their leases have better control over their costs, flexibility should they decide to relocate their business, and peace of mind from the volatile, yet skyrocketing costs of leasing commercial property.

Heating and Cooling Repair and Costs

Regardless of location, there are heating and cooling expenses to consider. Even if you plan to eventually upgrade to better heating and cooling equipment, don’t overlook negotiating any related expenses into your CrossFit affiliate gym lease. Take into account that part of your obligations as a business and gym owner is utilities. Unless you plan to negotiate heating and cooling costs into a gross rent lease to lower your overall financial liabilities, you are responsible for all associated expenses, that includes repairs and upgrades.

Calculate an estimate of what you expect your HVAC costs to be in advance. Then compare them to the amount of what you’d pay with a base rental lease before making any decisions or negotiations.

While you’re at it, be prepared to clearly define all tenant and landlord obligations should issues arise, like facility repair or upgrades for heating and cooling.

Wall-in and Wall-out Maintenance: What the Landlord Has to Cover

Signing a lease doesn’t give tenants the right to make certain changes to the exterior (wall-out) or interior (wall-in) of their gym without explicit permission from the landlord. Negotiating wall-in and wall-out maintenance provisions in your CrossFit affiliate gym lease is highly recommended.

Even though leasing gives tenants certain rights when it comes to maintenance and repairs, most of the time, landlords retain property rights and control over the facility’s exterior and interior.

For example, what if you want to make changes to the exterior of your facility to keep it from looking rundown and improve its appeal for gym members by painting, adding neon lights, or signage? Maybe you want to build out a lobby area, store and bathrooms with showers?  Unless you get it in writing from the landlord or have a triple net terms lease, you’ll be on the hook for any out-of-pocket expenses associated with wall-out and wall-in maintenance and repairs.

When negotiating the CrossFit affiliate gym lease terms, include detailed provisions about what’s allowed for interior and exterior damage and repairs.

CrossFit Affiliate Gym Leas

Key Takeaways

No matter how enamored you are with a particular location or facility, never sign a gym lease without completely reviewing and negotiating the most favorable terms for your situation. We advise that you have a local attorney review any lease terms before you sign.  This requires you to consider many things, including maintenance and repair costs, lease length, premiums, insurance requirements, rental, and usable space, and more.

It’s important to negotiate favorable lease terms that allow you to utilize your space in a way that benefits your business.

CrossFit RRG insurance offers various insurance products to help fitness facilities and CrossFit affiliates focus on what they love best, providing their members with the best training services, amenities, and space possible.

To learn more, contact CrossFit RRG at (310) 734-4373.