Booth Rental Agreements: Need to Know
A booth rental agreement is a contract between a hair salon and a cosmetologist that sets forth each party’s rights and obligations, when the cosmetologist will use the premises, how much the cosmetologist will pay for the rental space , and how the remuneration will be implemented. A booth rental agreement does not constitute an employer/employee relationship unless the agreement states otherwise. If the agreement is sufficiently structured, each party to the booth rental agreement can be held responsible for failure to perform under the agreement.
Prime Contract Provisions for Hair Salons
When it comes to establishing a formal, legal relationship between a salon lease and a stylist, you need to include these basic clauses in the contract.
Rental Fees
As a booth rental contract, your agreement must set forth the rental rate for the booth space as well as any deductions allowed for missed work days. The written agreement should also lay out the terms of payment. Are rents due weekly, or monthly? Must the stylist includes payment for the following week with each check or is there some other method of payment for next week’s rent? A contract should specify payment requirements in detail.
Agreement Duration
Most contracts for booth rental specify the rental period as indicated by month or by week. Contracts are also typically considered at-will agreements, meaning that any party can terminate the contract with notice as specified in the contract.
Termination Rules
Just as you are required to specify the term of the contract, the agreement for booth rental must also include the procedures for terminating the rental. Once a lease is terminated, the rental agreement should also specify the procedures for settling a final payment including deductions for chair cleaning, breakage or other reasons.
Maintenance Responsibilities
The obligations of the stylist to the facility must be expressly stated in the contract. Typical agreements require booth renters to keep their individual stations clean. The salon may also have rules about keeping the restroom clean, cleaning up hair off the floor or cleaning common areas.
Equipment:
Many salons offer a variety of tools and equipment for their stylist to use. Contractually specify who owns and maintains all of the equipment. Is the equipment rented from the salon? Does the Booth Renter own his or her own equipment? If the tenant owns equipment that breaks down during the term of the contract, who is responsible for its repair?
Important Legal Considerations for Stylists and Owners
A good salon owner will always look to protect their interests when deciding on the proper structure for their business. An owner can select from various business and legal forms under which he or she can operate. These include a sole proprietorship, a corporation or an LLC, or in some states a limited liability partnership or other specialized organization. The terms of any contract entered into by the salon owners and the stylists must be consistent with the legal form under which the business operates, and the relationship of the owners to the stylist must be clearly spelled out.
The stylist is an independent contractor, not an employee of the salon owner or the salon. Stylists should be aware that the IRS will examine the terms of their relationship to the salon owner closely, and will possibly seek to treat them as employees of the salon owner, for federal income tax purposes, if they are not clear on the responsibilities they bear as independent contractors. Every stylist must keep accurate records of his or her business and expenses, so that he or she can properly calculate the income they receive from the salon, and make all necessary federal tax filings.
Salons need to protect themselves with appropriate general liability insurance. Although a stylist is an independent contractor, and is responsible to insure themselves for their interruptions and losses, the salon owners have obligations to other stylists working in their salon to retain appropriate insurance to indemnify them in the event the salon or the stylist is found to be at fault for an injury to a customer or another stylist. In addition, lease owners often require additional specified insurance coverage. Some of the larger salon franchises maintain central insurance policies, or can provide assistance to franchisees in obtaining insurance.
Salon owners must operate in compliance with any local ordinances applicable to their business, including zoning ordinances and labor laws.
Setting Rates and Fees
Rental rates and fees are important components of the financial relationship between a salon/spa owner and a booth renter. The problem is that, within the legal framework of the relationship, the issue of how to set rates and fees is also complex. Ultimately, rental rates and fees will be a function of the business plan governing the salon/spa.
There are essentially two different approaches to setting rental rates/fees. In the first, you set your rates and fees based on what you believe the factors unique to your situation will bear. In the second, you set your rates and fees based on a detailed market analysis of what your competition charges and what amenities it provides.
There are a variety of methods for conducting this market research, including talking to others in the marketplace, researching trade publications, conducting or purchasing independent surveys, or hiring a professional or employed statistician (or another qualified professional) to provide you with a sophisticated statistical analysis of the marketplace and how it relates to your salon/spa. The type of market research you decide to do will depend on a variety of factors. Often, the type you can afford will be the primary determining factor in the type of market research you do. In some instances, you may not objectively decide what type of market research you want to do simply because you are not willing to pay for what is probably the most reliable and expensive method: a statistical analysis through a qualified, professional statistician (or other experienced professional).
Benefits of the Booth Rental Model for Salon Operators
The benefits of booth rental go in both directions. Owners of the salon and stylists utilizing them both benefit from agreements structuring their relationship. For the owner, a primary advantage is a lower financial risk. For the stylist, a booth rental allows him or her to own a piece of the business while only paying for what they use. First, in the salon owners’ specific situation, costs related to booth rental can be lower than those associated with regularly employing employees. With booth rental, the owner no longer pays payroll taxes or other benefits for employees. And because stylists are considered independent contractors and not the company’s employees, the salon owner does not need to pay for social security, disability or unemployment insurance for the stylist. In addition, the owner does not have to pay employee-related overhead, such as for paid sick leave or vacation time. Another major benefit of booth rental arrangements is that they can result in lower turnover and therefore lower recruiting costs for the owner. Because salon stylists working in a booth rental are considered independent contractors , they cannot be fired as employees can. They must work with the owner to dissolve the arrangement or the employee and owner must go through the proper channels to terminate a lease or contract. The Stylist also benefits from the fact that policies are typically more flexible for booth rentals than for employees. For the stylist, benefits of booth rental are obvious. They become their own independent businesses, maintaining control over their clientele, their hours and their money without having to pay hourly and overtime wages or pay taxes on an employer’s contribution to employee benefits. In addition, the stylist has the opportunity to earn more. Because a stylist is expected to pay for space in the salon, they are expected to maintain clientele and, therefore, to work more hours to earn more money. An employee is a fixed cost for the owner; the booth stylist is a dynamic part of the business whose time and space can be adjusted by owner and stylist not only based on how busy the business is but also on how busy the stylist is. From a business point of view, booth rental may be beneficial for owners, but it is essential to have a strong booth rental agreement in place to protect the interests of both the owner and the stylist. Whether you already have a booth rental system in place or are considering one, get legal advice on the structure that will best serve your business.
Common Problems and Solutions
One of the most prevalent issues that can arise in a booth rental arrangement is the tenant’s use of the common areas. Both parties should understand how the common areas will be used and what happens when a conflict arises. For example, if the bathroom is locked at 5 p.m., what happens if your business hours run until 9 p.m? Is it appropriate to have a sign indicating when the bathroom has been cleaned? If so, by whom? What about the break room for food storage or lunch breaks? Is it appropriate for a tenant to leave dishes in the break room sink? Having a booth rental agreement that discusses the tenants’ responsibilities for the common areas will not only provide clear expectations to the tenant, but will also provide some degree of protection for the salon owner should a dispute arise.
Hand in hand with the idea of common areas is the issue of personal property: what happens when a tenant vacates the location before removing all of his or her belongings? How are lost, stolen or damaged goods addressed? Are clients considered property? How is a client’s right to choose his or her stylist reconciled with a salon owner’s concern of losing a customer if the tenant decides to leave? A clear cut booth rental agreement should address all of these issues so that there is no confusion between the tenant and the salon owner as to who owns the client.
Finally, another common issue concerns communication between the parties. What is the best way for parties to communicate with each other? Are informed texts and emails acceptable methods of communication or should all communications be made in person? How are problems and issues to be communicated to each party? A booth rental agreement should clearly address these issues in order to avoid confrontation when the parties see each other only occasionally.
When drafting a booth rental contract, it is important to acknowledge these and other potential issues that can impact both the salon owner and the tenant. It is equally important that the contract detail the parties’ responsibilities and how those responsibilities are and are not delegated to the tenant. A well-written agreement can preserve relationships between the parties, while providing clear guidelines that can help to avoid disputes.
Example Booth Rental Contract for Reference
This agreement is made as of the ___ day of _____, 20___, between _____________, and _____________ ("Salon Owner") and ____________________ ("Booth Renter") for the purpose of memorializing the terms and conditions under which the Booth Renter will rent a booth from Salon Owner.
- Salon Owner agrees to (provide an electrical outlet) (not provide an electrical outlet) for the booth used by the Booth Renter. Salon Owner does not guarantee any minimum usage and will not charge the Booth Renter if the Booth Renter fails to use the electrical outlets granted.
- Booth Renter agrees to abdicate the rights to remove the booth with him/her at anytime or to switch the booths with other booth renters within the salon.
- The parties agree to the following:
4 . The Salon Owner agrees to make weekly rental payments to the Booth Renter upon termination of this rental agreement expeditiously within seven (7) days from the date of such termination.
- This agreement may be canceled with or without cause upon six (6) weeks written notice. The Booth Renter agrees to leave the booth within three (3) days from the date of termination of this agreement.
- This agreement supersedes any and all prior rental agreements between the parties hereto. The Booth Renter agrees to read and understand any posted house rules promoting the safety and welfare of the public and employees.
- Booth Renter agrees to pay to Salon Owner any and all costs incurred to collect all delinquent rental payments.