Lease agreements are like insurance policies – boring and difficult to read. But because a lease is a contract, it’s very important to understand what is IN it. As a salon owner, some of the most common types of contracts you will sign are leases for your space and equipment, applications for insurance policies, and finance/loan agreements. Language and provisions can differ greatly, so it is vital to both read and understand the content of the agreements.
It is very exciting to start a new business or obtain new equipment. In these situations, it’s easy to let your emotions take over and sign whatever is put in front of you without reading or fully understanding. The best advice anyone can give you is “review any document before you sign it.” If a section does not make sense, don’t sign the contract. Do not be afraid to ask questions or have a trusted adviser read a contract. If you have an attorney, refer contracts to him/her for review.
Many real estate leases are now placing the burden for anything that occurs on the premises – whether in the salon, walkways, or parking areas – on the tenant. That is you. Your landlord is probably asking for a hold harmless clause or waiver of subrogation. This means that even if you are not at fault for an event, you cannot go back against your landlord to recover any payments made by you or your insurance company. The lease may make you responsible for damage to or theft of AC units, glass, or other attached features. If your lease does include such clauses, you must confirm with your insurance agent that your policy would cover these items. If it does, you may also incur an additional charge for them.
Another consequence to keep in mind: if your landlord is non-responsive to maintenance issues, yet pushes the burden of insurance to you, it may become more difficult – or expensive – to purchase insurance.
Your lease may also make you responsible for maintenance of common sidewalks or parking areas. Do you live in an area that requires ice or snow removal? Make sure your landlord, and not you, will take care of it and that it is a provision of the lease. Otherwise, if a customer slips in one of those areas and the removal has not been done, the lease may push the liability from the landlord to you. If you are responsible for the snow and ice removal, be sure to have it maintained regularly.
Most leases spell out the types and limits of insurance the tenant is required to carry. The time to be made aware of this is before you sign on the dotted line. Your landlord will most likely require proof of insurance, and if the policy does not meet the requirements, you will need to purchase the additional coverage. Be particularly aware of liability limits – some leases may force you to purchase an Umbrella policy, which can substantially add to your cost. You may also be required to provide proof of Auto Insurance, Workers’ Compensation, and Business Income. These are all types of coverage you need to protect yourself, but they will not be optional if they are required by your lease.
Before you sign on the dotted line, know what you are getting into. Contact an insurance agent who specializes in the industry, plan for the cost, and build it into your business plan. It is YOUR business, and there are affordable, specialized programs available to help protect your investment.
Before you sign on the dotted line, know what you’re getting into.