Written by Amarjot Sangha pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution offered by Lawsikho as part of her coursework. Amarjot is a Practicing Advocate at Punjab and Haryana High Court, Chandigarh.
A gym is a commercial establishment quipped with facilities for doing physical exercise. A gym in order to be truly reachable to its customers needs to provide them with a comfortable environment to undertake the exercise and achieve their fitness goals. The gym owner has to make sure that clean premises, with well-equipped machinery, trained staff and other conducive environment is created and made available. Ordinarily a gym owner would enter into a commercial lease with the owner of a commercial building or establishment and take some space on hire for setting up the gym.
A commercial lease is which is entered into by the tenant with the landlord of a commercial building with the interest of setting up a business. This commercial building can be a showroom, retail space in a mall, in a market place, industrial buildings, offices etc. Such leases unlike the traditional leases house leases which are of 11 months, are usually are of a longer time period, sometimes 5 years or more.
The prospective tenant will have to negotiate with the landlord about rent amount, structural modifications needed particularly for a business, the overhead costs, security deposits, maintenance charges etc.
The rent of the building can be negotiated keeping in mind the location, the precise square foot of area, the floor on which we are leasing out the space, the ventilation, natural lighting, the rent in the area of similar properties and the amount which the property owner is asking. The rent can also be decided according to the consumer price index-CPI, this being a neutral percentage rate not decided by either of the parties. The rent shall be decided accordingly.
On what date shall the rent become payable. One can negotiate according to when it is convenient to oneself i.e when gym membership payments are received, say end of the month, beginning of the month. In case of default what is the penalty and how will it be charged.
DATE OF COMMENCEMENT AND TERM OF THE LEASE
The term of the lease shall be decided, in case of commercial ventures the lease period shall be of a few years as opposed to home rental agreement in which the lease is ordinarily of 11 months. The term could be of 5 years or even less though generally it is more because the costs involved in setting up a commercial venture is high and the place of the business cannot be changed frequently.
Once the premises to be taken on lease has been identified, the first step would involve to work out if the space which is available will fulfil all the needs of the gym. Will all the exercise equipment fit inside, will there be enough carpeted area for exercises such as yoga and general moving around of the staff, is there some separate space for the office and for the trainers to sit, will there be enough space for facilities such as changing rooms, toilets etc.
All in all it has to be negotiated if any small scale or large scale modifications can be made to the structure to make the space commercially viable and correct in conformity with the standard of business.
Once the building owner gives you permission regarding the modifications the changes can be chalked out clearly keeping in mind the building laws of the area.
SECURITY DEPOSIT, PERCENTAGE OF INCREASE IN RENT
The security deposit asked by owner, how much you can and want to pay, how much amount shall be returned to you once the lease is over. In case of breakage shall it be deducted from the security deposit, on which all default shall a deduction in the security deposit be made.
INCREASE IN RENT
The rent is increased every year. The percentage increase in the rent has to be decided between both the parties in advance.
The owner will inform you about the maintenance charges of the buildings. It has to be seen what are the charges in the area/building, are the charges asked from you unsually high. Are you paying maintenance charges for only your portion of the building, what is included in the maintenance charges that you need to pay them. For eg, do the maintenance charges include upkeep of the building from outside, cleanliness of the flight of steps to the gym, using a common lift, the garbage collection charges, the water bill, the chowkidar bill etc. here you may negotiate on things which you do not need. Say you are hiring security guard for the gym and you do not need the chowkidar, in that case paying his charges in the maintenance is not what you want.
IN CASE OF DAMAGE
In case of damage to the building due to general depreciation, fire etc what shall be the tenant’s obligations, who shall pay for the repairs, can the contract be terminated in case of a casualty, abatement of rent for the time period the landlord takes to repair the building etc.
The tenant can negotiate with the owner that he shall have the exclusive right to open a gym space in the building and the owner shall not rent out any other space in the building to a gym. He ought to ensure that the right of using the premises exclusively is included in the agreement.
HEATING , AIR CONDITIONER
India being a country where the weather alternates between hot and cold, we need to know how much of such facilities have been provided in the showroom or building, if you need additional units for the same, whether you can add them and what is the electricity load capacity of the building. Can you get it increased, etc.
Once a premises have been taken on lease the commercial business has to run on it. The business shall need to have music running inside, in case of festivals, banners will have to be put up, maybe an external audio system needs to put up to announce new offers and other freebies. Therefore it has to be worked out if one can be allowed to have the level of noise in the premises or area.
In commercial buildings taxes have to be paid which are levied by the municipal authorities or the administration. The percentage of tax to be paid by the owner of the building and the person taking the building on lease has to be decided.
Who shall foot the bill and make repairs if needed in the building. You can negotiate with owner regards any minor or major expenses which have to made on the building.
The building might have fire, theft, natural disaster, commercial property insurance etc, again it has to be worked out .The terms should be reasonable and not in excess.
In case of disputes between the parties, the jurisdiction shall have to be decided. Shall the parties approach a consumer court, undertake regular court proceedings or the dispute resolution is to be done through arbitration.
A landlord may terminate the lease agreement prematurely by giving a tenant a notice, the notice period should be decided, the tenant should negotiate for a long notice period because moving the business at a short notice might lead to losses. In case of the contract terminating how and when shall it terminate and in which way. In case of a breach of the terms and conditions of the agreement it will have to be decided as to if there shall be a penalty or if the contract can be terminated by the landlord alone. It can be decided among the parties that the termination can be done only if both the parties agree to terminate the contract.