Purchasing Laundromat with 11 years Left on Lease

[Sue Ma]

Hi,

I’m currently looking to purchase a laundromat that has 1 year left on the lease and 2 five year lease options. I had my attorney speak with the landlord to try to get a lease extension. I was hoping for an additional 2 five year lease options, for a total of 21 years. However, the landlord flat out said no to our request and that they are not renegotiating at this time. They are a larger real estate company, called National Shopping Plaza, so I’m not sure if this is standard protocol or if there is another reason they won’t consider the lease extension. I’m wondering if I should still go through with this deal considering there are only 11 years left on the current lease. The laundromat has older equipment as well (approx. 18 years old), so I will need to invest in some new machines in the next few years. The laundromat makes great net income, approximately $200K-$250k per year, so this is very enticing. However, with the shorter term lease and older machines, I’m getting second thoughts on whether this will be a good financial decision or not. I’m a first time buyer, so I’m hoping someone can provide some advice or thoughts on my situation.

Thank you!!
Sue

[Kalvin Sid]

The more important thing to understand is what happens in 1 year when it comes time to take the option: Will the lease go up by a guaranteed amount, or will you have to renegotiate the lease? If you have to renegotiate then it’s worth essentially nothing. What if the landlord decides to double the rent, even above market price? You have to know what the options are. My lawyer was good in pointing that out to me.

[Jason Dodge]

They said they are not renegotiating? Asking for options isn’t a renegotiation. Are the terms in the current options all laid out? This is a tough one, you want to have a business for longer than 11 years in most cases. The equipment loan could be 10 years. You pay off the place and then the property owner wants to crank up the rent, it could happen.

[Author]

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