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Opening a gym is an exciting and rewarding venture, but it comes with its own set of challenges. One of the most critical—and often overlooked—aspects of opening a gym is the process of signing a commercial lease. For many gym owners, this lease will represent one of the largest financial commitments they make in their business. Unfortunately, first-time gym owners frequently make mistakes during the leasing process that can have long-term consequences for their business’s success and sustainability.
As a gym business expert, I’ve seen these mistakes firsthand, and in this article, I’ll explore the most common pitfalls new gym owners encounter when signing their first lease, how to avoid them, and how to ensure that the lease you sign aligns with your long-term business goals.
1. Underestimating the Importance of Location
“Location, location, location” is a mantra for a reason, especially in the gym industry. The location you choose will significantly impact foot traffic, member retention, and your brand’s overall visibility. Many first-time gym owners fall in love with a space because it seems affordable or conveniently located for them personally but fail to evaluate whether it’s the right fit for their target market.
Mistakes:
- Not considering demographics: Failing to analyze the local population’s fitness habits, income levels, and potential interest in your gym can result in low membership signups.
- Ignoring accessibility and parking: Your gym may be beautiful, but if it’s difficult for members to reach due to poor parking or inconvenient public transport, they’ll eventually look elsewhere.
- Overlooking competition: Some new gym owners sign leases in areas saturated with competitors, making it difficult to stand out or attract members.
Solutions:
- Conduct a thorough market analysis: Before signing, ensure the area has the right demographics for your gym’s offerings. You should also consider whether the location aligns with your pricing model (budget, mid-tier, or premium gym).
- Evaluate accessibility: Ensure there’s enough parking for your members, and if your target demographic relies on public transportation, make sure the gym is easy to reach.
- Scout the competition: Research other fitness facilities nearby and evaluate their strengths and weaknesses. You’ll need to carve out a unique value proposition if you’re in a competitive area.
2. Failing to Negotiate Favorable Lease Terms
First-time gym owners are often too eager to lock down a location and fail to negotiate the terms of their lease. This can lead to agreements that are unfavorable or too rigid to accommodate the dynamic nature of the gym industry.
Mistakes:
- Not negotiating rent increases: Many commercial leases have built-in rent escalations that increase over time. Gym owners often sign leases without negotiating these terms, leading to rent costs that become unmanageable as the business grows.
- Overcommitting on the lease term: Signing a long-term lease may seem like a good idea to lock in the space, but committing to a lengthy contract without flexibility can hurt you if the business needs to move or expand.
- Not including build-out and improvement clauses: Gym owners often don’t realize they can negotiate for allowances to improve the space. Many end up paying out of pocket for renovations or equipment installation.
Solutions:
- Negotiate rent escalations: Always negotiate a cap on how much rent can increase each year, or try to lock in a fixed rate for as long as possible. Be mindful of future rent increases that could negatively affect your cash flow.
- Seek flexibility in lease duration: Consider a shorter initial lease with an option to renew. This gives you flexibility if the location doesn’t perform as expected. Also, negotiate exit clauses that allow you to leave under certain conditions.
- Build-out allowances: Landlords often provide tenants with money for improvements (TI, or Tenant Improvement allowances) if negotiated properly. Always ask for these allowances to offset the cost of renovating the space to suit your gym’s needs.
3. Misjudging the Space Requirements
Gym owners often either underestimate or overestimate the amount of space they need. Both can lead to operational and financial challenges down the line.
Mistakes:
- Too much space: Leasing a larger space than necessary leads to higher upfront costs and more expenses for maintenance, utilities, and cleaning. Empty or underutilized spaces may also create a negative atmosphere for members.
- Too little space: On the flip side, underestimating your space needs can limit the number of members you can serve and restrict your ability to offer key amenities like group fitness areas, personal training spaces, or locker rooms.
- Overlooking zoning and permit issues: Many new gym owners sign leases without confirming that the space is zoned for a gym or that they can easily acquire the necessary permits to operate.
Solutions:
- Right-size your space: Calculate your space requirements based on your business model. Consider the types of services you will offer (e.g., classes, personal training, cardio, strength training) and how much space is needed for each.
- Leave room for growth: Ensure that the lease has options for expansion if your membership base grows faster than expected. Some landlords will allow you to expand into adjacent space if it becomes available.
- Check zoning and permits: Before signing, confirm with the landlord and the city that the property is zoned for fitness use and that you can get the permits necessary to operate without issue.
4. Overlooking Maintenance and Repair Responsibilities
Gym owners often assume that the landlord will take care of maintenance and repairs, but many leases place the responsibility on the tenant. Failing to clarify who is responsible for what can lead to unexpected and significant costs.
Mistakes:
- Assuming the landlord will cover maintenance: Gym equipment, heating and cooling systems, plumbing, and electrical systems all need regular maintenance and repair. Some leases place the burden of maintaining these on the tenant.
- Not clarifying common area maintenance fees (CAM fees): Many leases require tenants to contribute to the cost of maintaining shared spaces (lobbies, parking lots, restrooms). These fees can add up quickly, and many new gym owners don’t budget for them.
Solutions:
- Negotiate maintenance responsibilities: Before signing, clarify exactly what the landlord is responsible for maintaining and what you, as the tenant, will be expected to cover. Try to negotiate terms where the landlord handles large-scale repairs (HVAC, roofing, plumbing).
- Understand CAM fees: Make sure the lease is transparent about common area maintenance fees, how they are calculated, and what they cover. Negotiate caps on how much these fees can increase over time.
5. Signing a Lease Without Legal Review
One of the biggest mistakes first-time gym owners make is failing to have an attorney review the lease before signing. Commercial leases are complex, and there are often clauses that are easy to miss but have significant long-term consequences.
Mistakes:
- Signing without understanding terms: Leases often contain complicated legal language that can be difficult for non-experts to fully understand. This can lead to signing agreements that are heavily in favor of the landlord.
- Missing unfavorable clauses: Clauses related to rent increases, termination, liability, or subleasing can dramatically affect your business. Many gym owners don’t realize these clauses are negotiable or don’t fully understand their impact.
Solutions:
- Hire an attorney: Always have a real estate attorney review the lease before you sign. They can help identify unfavorable clauses and negotiate better terms on your behalf.
- Ask for revisions: Don’t be afraid to push back on terms that are unfavorable. Commercial leases are often negotiable, and you want to ensure that the terms align with your business’s best interests.
6. Ignoring Hidden Costs
The base rent is not the only expense you need to consider when signing a lease. Many first-time gym owners focus solely on the rent and fail to account for additional costs like utilities, taxes, insurance, and maintenance.
Mistakes:
- Underestimating operating costs: Running a gym involves high utility bills (electricity, water, heating, and cooling) and maintenance costs. Failing to account for these in your budget can lead to financial strain.
- Neglecting property taxes and insurance: Some leases require tenants to pay a portion of the property taxes or maintain specific types of insurance. These costs can add up quickly, especially if not planned for.
Solutions:
- Budget for hidden costs: Ask for a breakdown of all costs associated with the lease, including utilities, taxes, insurance, and maintenance. Factor these into your financial planning from day one to avoid surprises.
- Clarify insurance requirements: Make sure you understand the landlord’s insurance requirements and get quotes before signing the lease. Also, consider business interruption insurance in case your gym needs to close temporarily due to unforeseen events.
Conclusion: The Lease is a Major Business Decision
Signing your first gym lease is a critical moment in your business journey. It’s not just a financial commitment; it’s a decision that can impact the success, flexibility, and growth of your gym for years to come. By avoiding the common mistakes outlined above—such as not conducting thorough market research, failing to negotiate terms, underestimating space needs, and skipping legal review—you can set your gym up for success.
Take the time to fully understand the terms of the lease, consult with legal and real estate experts, and negotiate a deal that aligns with your long-term goals. With the right lease in place, you can focus on building a thriving gym that serves your members and grows sustainably. Contact Jim here.
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Meet Jim Thomas
Jim Thomas is the Founder and President of Fitness Management USA, Inc., a premier management consulting, turnaround, financing, and brokerage firm specializing in the leisure services industry. With over 25 years of hands-on experience owning, operating, and managing fitness facilities of all sizes, Jim is an outsourced CEO, turnaround expert, and author who delivers actionable strategies that drive results. Whether it’s improving gym sales, fostering teamwork, or refining marketing approaches, Jim has the expertise to help your business thrive. Learn more by visiting his website or YouTube channel.
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