When coming into a new lease agreement, a tanning tenant may be asked for a “lease deposit.” If you are confused about this term, then this month’s issue of leasing Q & As is for you.
Q. I’m negotiating a new lease for a new tanning salon I plan to open (my fourth location) – the landlord’s agent says I have to give a security deposit – is this correct?
A. Most tanning salon tenants do provide deposits when they lease a new location – but not for the reason you might think. Sure, sometimes if the landlord’s inducement package is large, a deposit may not be unreasonable. However, in most cases, the purpose of the deposit is to offset the real estate commissions the landlord will be paying to lease the space. In my past experience as a shopping center manager, I can tell you that landlords would rather use the tenant’s money to pay the real estate commissions than to dip into their own pockets.
Q. I have been leasing space in the same location for my tanning salon for 12 years and the landlord still has my deposit – how can I get it back?
A. At The Lease Coach, we negotiate many lease renewals (often with rent reductions). As part of the lease renewal negotiations, we will normally negotiate to get the tenant’s deposit back, eliminate personal guarantees and even negotiate for inducements from the landlord such as free rent and tenant allowance money. When we negotiate a new lease for a new tanning salon location, to close the deal, we negotiate the amount of the deposit, the length of time until it’s returned and even when it’s paid. Every lease deal is somewhat unique, but deposits are not mandatory by law; they are negotiable.
Q. Why is a security deposit on my lease necessary?
A. As previously explained, deposits are not mandatory by law and they are negotiable. If you are negotiating on a new lease location, the landlord’s agent may ask for a deposit up-front. This is partly strategy since most tenants cannot afford to put out multiple deposits. If the landlord or agent is holding your deposit, it is much more likely he/she will close the deal with you rather than lose you to another site.
Q. How much of a deposit is normal on commercial leases?
A. The industry norm would be two months’ rent – but don’t get hung-up on this. The key is where the deposit is applied. If the landlord insists on a two-month deposit, then we negotiate to have that deposit applied to the first two months’ accruing rent. If the deposit is applied up-front, then it’s a much easier pill for the tenant to swallow.
Got a leasing question? Like a complimentary copy of Dale’s CD, “Leasing Do’s & Don’ts for Tanning Salon Tenants”? E-mail firstname.lastname@example.org, and I’ll answer you in an upcoming article on LookingFit.com.
Dale Willerton is The Lease Coach and a senior lease consultant who works exclusively for tenants. As an ITA member, Willerton has spoken at many North American tanning conventions. He is the author of “Negotiate Your Tanning Salon Lease or Renewal.” Call him at 800.738.9202, e-mail email@example.com or visit www.theleasecoach.com and/or www.helpuleasetanning.com.