Essential Leasing Tips for Gym Owners

Entering into a new lease can be daunting for many business owners as there is no ‘one size fits all’ approach for leases and a poorly negotiated lease can lead to costly legal and commercial implications down the track. The purpose of this article is to provide gym owners with some useful tips when negotiating a new lease arrangement.

Key Insights

• Before committing to entering a lease, it is essential that the local council approves the operation of a gym in the space you want to lease.

• Understand how you want to use the space, how the landlord can help you reach your goals and what fitout works you will need to do before you open the business. 

• Be conscious of potential noise issues that can arise in the day-to-day operation of a gym, and how this may affect your neighbours. 

• If you are operating as part of a franchise, it is fundamental that you understand how your franchise agreement works and what rights the franchisor has. 

Planning Requirements

As a tenant entering a new lease, it is vital that the premises you seek to lease can in fact be used as a gym under the local council’s planning scheme. A landlord is very unlikely to provide any kind of warranty or guarantee that the premises is suitable for the tenant’s proposed use, and so it falls to the tenant to do its own due diligence to ensure they are comfortable the place can be used as a gym. 

The local planning scheme will generally advise:

• what the land can be used for without a permit;
• what the land can be used for with a permit (must be granted by council); and
• what the land cannot be used for.

Given that planning approval can often take months to be finalised, it is very important that this process is commenced well before being locked into a lease and being required to start paying rent. A tenant should also aim to negotiate including a clause in the lease that the commencement date is subject to the grant of a planning permit, and an ability to terminate the lease if the planning permit is not approved. 

Important items to consider as part of the planning permit process include:

• intensity of use – the number of anticipated employees and patrons; 
• social impact arising from development – will there be any loss of affordable housing or community benefits from improved local facilities;
• any increase in infrastructure required to support the use;
• what signage will you need for your business; 
• impact on traffic and parking in the area; and
• hours or operation of the facility

If you are moving into a premises with a pre-existing gym, it is important to review the existing planning permit to ensure that its terms are acceptable to you, and that the permit does not expire during the term of the proposed lease. 

Fitout Works and Incentives

A landlord may be prepared to offer a tenant incentives to go towards fitting out the premises to suit the tenant’s intended use, which can be treated as a form of investment for the landlord as the improved fitout may increase the value of the premises. This should form part of the initial negotiations so you understand how much your total fitout costs will be. 

Ideally, you will also negotiate a rent-free period once the lease starts that for however long you think it will take for you to complete the fitout. The goal being that you won’t start paying rent until you commence trading (assuming everything goes to plan with the fitout!).  

It is vital to have a firm idea of what the fitout/floor plan looks like and ensure that the premises suits your needs. This can include:

• is there enough space for the equipment needed;
• does the existing air conditioning system work well enough;
• how much work is needed to soundproof the space;
• will the current plumbing systems support additional showers and/or toilets; and
• will the existing electrical infrastructure support the audio visual equipment you want to install.

Being able to provide a proposed plan to a landlord during negotiations for a new lease can go a long way to simplifying the approval process for fitout works and serves as a base point to discuss potential fitout incentives, rent-free fitout installation periods, and any specific requirements a landlord may have relating to fitout. 

It is important to remember that you will most likely need to reinstate the premises to its base build position when the lease ends. This means that you should try to be strategic in simplifying your initial fitout works so that the reinstatement works are as simple (and cheap) as possible at the end of the lease 

Noise Issues

Most leases contain obligations for the tenant to:

• comply with council noise restrictions; and
• not generate noise/music/sound that can be heard outside of the premises or cause disturbance to adjacent properties/neighbours.

A common issue with gyms is that music is usually played throughout the premises and/or noise might be generated when heavy weights are lifted and dropped on the gym floors.

Accordingly, gym tenants can risk defaulting in their lease obligations in respect of noise/disturbance.

Depending on the type of gym model you operate and whether or not noise and/or music may be an issue, you may wish to consider:

• additional soundproofing as part of your fitout works/the landlord’s works (where applicable); and
• negotiating the terms of the lease such that these noise/disturbance obligations apply less strictly in the context of your gym business.

Franchises and Business Sales

It is standard practice that a tenant will require the landlord’s written consent to transfer the lease to a third-party (e.g. in the event of a sale of the business at the premises) and for a change of control in the tenant (e.g. where the shares in a corporate tenant are sold).

It is also increasingly common for most gyms to be part of a larger franchise model. 

Whilst most leases will not contain absolute prohibitions on future lease assignments or changes in control, the lease assignment process can be lengthy and drawn out as the lease may contain extensive or onerous conditions to be met before a landlord approves an assignment.

To future proof the value of your business and to expedite any future transitions of the lease, it may be worth negotiating a reduction in these conditions for certain types of proposed assignments, for example an assignment or business sale to a fellow franchisee or to the franchisor. Depending on your franchise model, franchisor may also be the ‘head-tenant’ under a lease or require the ability to ‘step-in’ into the lease, so it is important that these terms are properly factored into.

 Final remarks

While the above items are specifically important for tenants operating a gym, all tenants of leases that are subject to the Retail Leases Act 2003 (Vic) should also know their basic rights under that legislation. Most gyms in Victoria would fall within this legislation, and some of these rights to be aware of include:

• the landlord being responsible for capital maintenance, plant and equipment maintenance and maintenance of appliances/fixtures/fittings related to services to the premises (electricity, gas etc). This includes maintaining air conditioning equipment;
• you are not obliged to cover a landlord’s legal costs for entering a new lease;
• the landlord must give you a disclosure statement providing specific information (including outgoings estimates) to you before entering a new lease;
• the landlord must also provide you with ongoing outgoings estimates and statement of outgoings during a lease. If they do not, you may not be required to pay outgoings; 
• a landlord cannot unreasonably withhold or delay their consent to a proposed assignment of the lease; and the landlord must not pass on any land tax costs to you.

This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.

Authors: Senior Associates, Joel Garrett and Bryan Yeo at Velocity Legal