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Running a CrossFit Facility Tips and guidance on how to open and operate a CrossFit gym.

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Old 02-03-2011, 07:27 AM   #1
Jim Pascucci
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Lease Agreements

Let me start with saying thanks for all the help I've received from this group. It is so nice to be able to tap into the collective wisdom.
After 17 years in private practice renting studio space, I am entering into the unknown of renting a commercial warehouse type space. After all the negotiations the lessor presents me with lease in the name of my LLC but requiring a Personal Guarantee. Is this common? I have one year with and option on a second year.
Any help is appreciated
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Old 02-03-2011, 09:19 AM   #2
Sean Dunston
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Re: Lease Agreements

Jim-
The short answer is yes. A personal guarantee, given by the business owner, or the partners (whatever the case may be), is quite common for a commercial lease.
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Old 02-04-2011, 08:28 AM   #3
Jim Pascucci
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Re: Lease Agreements

Thanks Sean.
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Old 02-04-2011, 02:23 PM   #4
Brian Strump
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Re: Lease Agreements

Yes, common in commercial leases especially for a new business. We moved, and the new landlord required myself as the guarantor. After our first 3 years lease is over, I will not need to be on there anymore, personally.
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Old 02-04-2011, 03:02 PM   #5
William Henniger
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Re: Lease Agreements

I would negotiate further, try to get the following options:

1) Your personal guarantee comes off the lease in 6 months

2) Your personal guarantee comes off the lease in 1 year

If you don't have a real estate broker then get one. You will pay less due to him negotiating the terms for you and he can make try to get you the above.

Negotiating a lease is not fun but you need to stand firm on what you are willing to accept.

If you cannot get your name off within a reasonable amount of time I would only sign a short term lease.

In Columbus there is a ton of space for lease and they are hurting for people to rent.

Hope that helps

Bill
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Old 02-04-2011, 03:35 PM   #6
Thomas Davenport
 
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Re: Lease Agreements

Bill's suggestions are good, and there are other alternatives, as well.

You might want to get the LL's consent that if you assign your lease, your guaranty is released (or, as Bill suggested, released after x number of months' of performance). You never know, your box could quickly outgrow the space, and you need to move to a larger space. If you remain personally liable on Lease No. 1 and also have a personal guaranty on Lease No. 2, your credit profile may become an issue for other financing (home loan, equipment leasing, etc.).

You could also try to get the LL to agree to cap your liability under the guaranty at a certain amount, perhaps 3 - 6 months' rent. Expect the LL to ask for carve-outs for damages to the premises. That is probably fair as you need to maintain your premises and properly insure them anyway.

The whole area of personal guarantees is pretty technical, so, like the lease itself, it is worth considering swallowing hard and paying a competent real estate attorney to review these things.

There is lots of vacant space available these days, so the scenario where the landlord presents take it or leave it deals is gone (for now). Bill's suggestion of having a real estate broker assist can be very valuable, but I think it is very dependent on finding a decent one (which can be tough). While the LL pays the commission, that effectively gets added to the lease in rent you pay, so that broker's negotiation skills on your behalf need to be pretty strong. Definitely avoid a dual representation scenario (if it is permitted in your state).
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Old 02-07-2011, 08:22 PM   #7
Jim Pascucci
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Re: Lease Agreements

Thanks for the help. We signed the lease tonight and our Affiliate application was accepted today. So, things are moving quickly. We got a one year lease with an option on the second year if we notify within the next months. We have an out if the zoning falls apart--there are other Affiliates in the city with the same zoning restrictions. We took 50 pictures of damage to floors, walls etc. that they are responsible for, as well as their being responsible for maintenance on things like the heaters, air conditioner, plumbing...
This all happened very quickly when a local affiliate decided to close and we bought their equipment and hired one of the owners as our head coach.
Thanks again.
jim
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Old 02-27-2011, 07:43 PM   #8
David Wisniewski
 
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Re: Lease Agreements

If you can, I strongly suggest having an attorney review the lease before you sign it. I recently reviewed my box's lease and it was atrocious, the landlord had a lot of items that were not enforceable and one-sided. I was able to negotiate the lease to my liking so that it was acceptable to the landlord and the box owners.

Personal guarantees are quite common. Make sure that you understand what you are personally guaranteeing and what you are on the hook for financially.

Some things to be aware of / look out for:

1) leases with waiver of notice of default
2) confession of judgment (if legal in your state)
3) leases that waive the landlord's requirement to mitigate their damages (such language would be void as against public policy in a lot of states)
4) language that permits the landlord to take everything that is not nailed down in the box if there is a default, and do what it wants, without first obtaining a judgment.
5) acceleration of lease in the even of default (i.e., let's say the lease is 2 months in on a 1 yr lease and rent is a few days late and LL declares a default, they would say that remaining 10 months are due immediately)
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Old 02-28-2011, 08:31 PM   #9
Jim Pascucci
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Re: Lease Agreements

Thanks for the advice David.
As an update we signed the lease but not the personal guarantee. There was quite a bit in the lease that we had to change, I think your advice of paying a lawyer to look it over is well worth the money.
We got our affiliate Integral CrossFit approved and are just updating our website before linking it to the main site. You can find us on facebook at Integral CrossFit.
I've sent a couple of emails to this forum's administrator to get on as an affiliate but haven't heard back yet. They most be very busy.
Once again thanks to everyone for your help.
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