Booth Rental Agreements Explained
The booth rental contract is one of the most significant yet often overlooked components of a salon. When an owner gives a stylist their own room or cubicle or even just a large section of an open space, there are certain questions that need to be asked which need to be answered in such an agreement. While the general concept might be obvious, there are still details to work out. Both sides need to understand their rights and obligations in order to avoid interruption in business or costly disputes. In general terms, a booth rental contract is a rental or lease agreement between a salon owner and a stylist to rent some space. Most of the time, the stylist will pay a fixed fee or a percentage of their weekly or monthly income to the owner. The owner of the salon can be a single person and even a corporation or LLC.
Just about every major salon chain operates under a type of booth rental agreement. While the terms vary broadly, most will allow for the stylist to obtain an office or cubicle from the owner, but also a certain amount of autonomy and independence in how they conduct their business. This is because they are responsible for their own supplies, utilities and sometimes the way they conduct business . There are some owners who actually pay a base salary to the owner to manage the space, with the potential for a large commission on top of it later on. Most of the time, however, the stylist is often called an independent contractor or independent licensee who pays some type of nominal flat fee or percentage of their income to the owner. Anytime there is a booth rental contract in place, you can almost guarantee that the stylist will call themselves an "independent contractor," as it allows them to avoid having to pay certain taxes. A true contractor has some areas of autonomy, but the IRS also controls this small technicality of the booth rental arrangement.
Typically, there are roughly 6-7 points you need to consider if you are a salon owner or stylist:
· How long is it going to last?
· How much are you going lease/rent space for?
· What sort of services do you need to provide?
· How are you going to communicate with each other?
· Are there any special amenities?
· What are the termination provisions?
· What are you going to do if one party violates the terms?
There are a number of different arrangements that all have favorable outcomes, so it is important to not rush into anything. Intensive negotiations may be required to ensure that all parties have clearly understood this type of contract.
Key Components of a Salon Booth Rental Contract
As with any contract, it’s important that the salon and the beauty professional are on the same page as to the type of relationship they share. The agreement should generally address the following terms:
Rental Fees/Amount
The most basic of terms is the reelection amount. This includes not only the amount, but how frequently it is to be paid. Will payments be weekly, bi-weekly, monthly? By cash, check or credit card? Are there additional fees for utilities or supplies? Does the beauty professional receive a discounted price if paid early or on time? Does the salon take prorated payments for partial weeks or months worked?
Schedule
What days and times is the beauty professional expected to be at the salon? Are they required to work every scheduled hour? How many hours a day/week is the rental space required to be open?
Responsibilities & Expectations
What is expected of the beauty professional? Are they required to maintain their booth in any specific way or keep it stocked with certain products? Are there any regularly scheduled salon meetings the beauty professional is expected to be at? Are they required to wear a uniform? What about gratuities? Does the salon facilitate the process, or is it left up to the beauty professional?
Liability and Responsibilities
What happens in the event of damage to the property or equipment? Who is responsible? What are the processes for handling cancellations, no-shows and tardiness? What steps are in place to escalate such matters?
Termination
What happens in the event of an issue? How does the process work? Is there an arbitration process? How much notice is required to terminate the agreement? Is there a workday guarantee in the event the agreement is ended?
The goal is that both parties know exactly what they’re walking into, including the consequences of not performing as required. It’s also the responsibility of the salon to be familiar with the state and local employer laws in the event of transitioning to an employee in the future.
Legal Aspects of Booth Rentals
Local ordinances or regulations may require all tenants or employees to be licensed. The concept behind these licensing requirements is to guarantee that a specific minimum level of ability has been attained. It is the responsibility of the landlord to ascertain whether or not any such laws exist.
In California, while this has not become a significant problem, taxes have been a source of some controversy in other states. In Alabama, for example, a barber licensed to operate a booth who pays a daily rental fee to another person is in violation of the law. That person may be classified as an employee of the person to whom they rent the booth and subject to income and payroll taxes for the employer’s share of Social Security, Medicare, federal unemployment and possibly, state unemployment tax. This is because although the parties may have contractually termed them as independent contractors instead of employees, the substance of their activities indicates otherwise. There the barber had no opportunity to suffer the risk of loss or earn the benefits of gain, such as if the booth owner raised or lowered the rental fee based on the performance of the barber. As a consequence, the IRS may impose a penalty tax on both the barber and the owner with respect to this seemingly innocuous activity.
Oregon, like Alabama, has laws specifically directed at the classification of the worker as an employee or independent contractor. The Department of Revenue adopted an administrative rule that considered all tenants or workers in a salon as employees if they were required to use the owner’s telephone, appointment book or receptionist or paid a fee of any kind for the use of the facilities. It stated that even if the worker possesses a license, in order to be classified as an independent contractor he or she must assume the risk of an operating loss and have an opportunity to receive a gain that goes beyond fees for services.
Like all agreements, a booth rental agreement should be in writing and signed by both parties. It should specifically detail the amount of rental to be paid, how services are to be rendered on behalf of the owner, how tips will be divided and the procedure for terminating the agreement. It should also specify if the owner’s name is to be shown in all advertising for the business as well as a statement that the tenant will comply with any and all local, state and federal laws in their operations. Failure of the tenant to so comply, may result in termination and possible legal action against the tenant.
Drafting a Tailored Booth Rental Contract
Customizing the terms of an agreement to fit specific needs is as simple as understanding the type of rental situation that exists. For instance, room-size agreements may need to accommodate for more services or even more storage space for products and implements, whereas chair-rental situations are typically somewhat simpler. On the other hand, a suite-style situation with multiple rooms may need more detail than an arrangement with a single-room layout.
A starting point in the customization process is simply knowing how to choose one of the many available contract templates so that it accurately reflects the proposed agreement . To accomplish this, with even a simple glossary of terms and a few guidelines to review, a contract template can be adapted to illustrate the terms of any arrangement. Another way to customize a contract quickly is to talk with a legal professional about the details of the situation. Since most booth rental contracts are designed according to state-specific laws, consulting with an attorney regarding contract terms is one of the most important and beneficial things to do during the process.
Best Practices in Salon Booth Rentals
The relationship between the salon owner and the booth renter is predicated on communication, transparency, contract enforcement and conflict resolution. The salon owner and booth renter should agree to meet monthly or bi-monthly to review issues that may arise during the term of the contract. This will give both parties the opportunity to raise concerns, address misunderstandings and resolve problems amicably. Regular client reviews will help the salon owner to gauge whether there is a need to make changes to the terms of the contract.
The salon owner should document all communications with the booth renter to create an up-to-date written record. Letter writing, while it may be considered old-fashioned, can be an effective tool for both parties as it creates an accurate account of events and can be used as evidence in court if necessary. Appointing a neutral party to mediate any dispute is an efficient method for resolving conflicts. The mediator must be someone who is objective and aware of the business in order to assist with the resolution. It is important that the salon owner and booth renter approach the issue with a level head, even when there is an emotional attachment to the situation.
Written contracts form the foundation of the relationship between the salon owner and the booth renter. Both parties should take the time to read the contract carefully and ensure that they have a thorough understanding of it. Adhering to the terms of the contract and remaining in contact with the booth renter on a regular basis will minimize issues.
Frequently Asked Questions: Booth Rental Contracts in Salons
Frequent questions salon owners and renters have with booth rental contracts:
Do I have to offer a lease renewal? I’ve had this lease for years, and now the renter is refusing to leave the salon. Regardless of how long you’ve agreed to lease the space the tenant needs to abide by the agreement just as you do. Technically you are responsible for your obligations under the terms of the agreement, and you have a claim against the tenant for any damages he/she causes. For instance, if you need to bring in another tenant, you suffer a loss of rental due to the space being empty, or your reputation is harmed due to the tenant’s conduct you may be able to recover those losses from the tenant .
Can I charge a deposit for the lease in the space? Yes… generally, a salon as the landlord can charge a security deposit against any damages the tenant may cause. The term "damages" includes any loss of rent for the time it takes to re-rent the space. It also includes damages to your property, loss of business reputation and other direct costs due to the tenant’s acts or omissions.
Can I refuse to re-rent the space to a tenant who has been a bad tenant? In theory, yes. In practice, however, you risk incurring liability for not acting reasonably. If you expect to make a claim against the tenant for damages to the property you are obliged to act like a reasonable landlord. Generally, a tenant is not a permanent tenant. At any time you can re-rent as you see fit unless you have a lease for a defined period of time.