Your daycare’s lease isn’t just a piece of paper—it’s the backbone of your business’s longevity. Many daycare operators overlook this critical fact, assuming that lease renewals will continue indefinitely without actively negotiating terms to secure their future.
I’ve encountered numerous stories from daycare owners who found themselves without a lease renewal due to various reasons, leaving them scrambling for a new location. Take, for instance, a daycare renting space in a church for over a decade. When the church decided to reclaim the space for its own use, the daycare owner was left without a lease renewal despite years of tenancy.
Unlike residential leases, commercial leases offer less flexibility. Once a commercial lease expires, the tenant is typically required to vacate the premises. Without a lease, there’s no daycare, and consequently, no business. Relocating is no easy feat; suitable spaces are scarce, and starting anew entails significant renovation costs, not to mention the time it takes to become licensed and operational.
Viewing your lease as the lifeblood of your daycare changes your perspective. Many owners opt for short-term lease renewals out of fear or assumption that renewals will continue indefinitely. However, nothing lasts forever, and assumptions hold no weight without contractual guarantees.
For those starting a new daycare, securing a 10+5+5 lease is advisable. This entails a 10-year fixed lease with pre-negotiated terms, followed by two optional 5-year renewal terms at market rates. These optional terms offer the flexibility for daycare owners as you can choose to renew or not at the time of renewal. The Landlord is obligated to provide the options for the daycare owners to renew.
When selling your daycare business, it’s crucial to extend the lease as long as possible, ideally for another 10 years. This extension can take the form of existing lease terms combined with optional renewal terms or a single fixed lease duration. However, ensure that the lease rate remains reasonable, as exorbitant rates can diminish the selling price of your daycare business. In addition, it would be a good idea to have the lease extended before selling. This will avoid uncertainty and also Landlord might act differently once they know your business is up for sale which could jeopardize your opportunity to sell.
In essence, your lease isn’t just a contractual obligation—it’s the lifeline of your daycare business, and treating it as such is essential for long-term success and stability.
