An owner of a booth rental establishment advertises his business and wanted to know if he could charge his tenants a fee for walk-in business.
Before we get into this, let’s acknowledge some facts.
- It is not the salon landlord’s responsibility (nor are salon landlords in any way legally obligated by any state or federal law) to advertise or provide a clientele to self-employed renters. Self-employed professionals rent space and conduct their business without their landlord’s interference. Therefore, the renter must secure their own clientele. Owners who advertise booth rental establishments are awesome for investing in their tenants.
- Renters cannot be required to do anything aside from paying their rent and abiding by the terms of their lease agreement. As business owners, renters can choose to participate and pay a referral fee to obtain the client, or not.
- Salon landlords aren’t required by any state or federal law to allow renters to take walk-in or call-in clients. If the landlord works in the salon as a professional, they can take those clients for themselves.
If you are one of those awesome salon landlords who advertises the rental salon to attract potential clients (as opposed advertising it to potential renters) you only really have two options to cover those costs: including the cost in the rent or taking one-time payments when renters benefit from the investment.
When you charge more for rent, you know your advertising costs will be fully covered, however, that system isn’t entirely fair as renters who are fully booked and those who don’t work many hours during the week likely won’t benefit much at all. Plus, you’d have to devise a walk-in rotation system and police it. That type of arrangement tends to invite conflict, exploitation, and abuse unless they’re diligently managed.
When you take fees for walk-in or call-in clients, you ensure that the renter who directly benefits from the advertising pays for it.
To be clear, the referral fee must be:
- optional. You cannot force renters to take walk-in or call-in clients and pay you for the privilege. Either they pay the fee and get the client, or they do not pay the fee and you assign the client to yourself or one of your own employees (if you have them).
- a one-time occurrence. You don’t get to charge the professional every time the client returns. That constitutes a few violations of the 20 Factor Test the IRS uses to determine employment classification.
- a flat dollar amount, set in advance. You should not be taking a percentage of the sale. At best, this puts you into very murky legal waters because again, this constitutes a violation of the aforementioned 20 Factor Test.
For a client to be considered a walk-in or call-in, the client must not have a preference for any of the renters. These clients are attracted by the salon’s signage, location, or advertising. They call the salon’s main phone line or walk in through the front door, asking for an appointment with “whoever.”
If multiple renters have gaps in their schedules they’d like to fill, no matter how you handle the fee, you’ll have no choice but to establish a rotation.
I recommend doing so in advance to eliminate the possibility for conflict.
- Establish the order of priority yourself before clients begin arriving. You don’t want people arguing in front of the client over whose “turn” it is.
- Make the rules clear. For instance, you could prohibit renters from passing a walk-in to the next renter on the list to keep them from declining a client requesting low-cost service in hopes the next client will be requesting something more profitable. (That’s a classic example of how professionals can exploit a walk-in rotation system.) Should they attempt to exploit the system, you could revoke their eligibility to participate that day.
- Ensure the renters know where they stand. You own the salon. You’re responsible for the walk-ins and call-ins if they’re brought to the business by your advertising. You retain ultimate authority with regards to if a particular walk-in is to be distributed at all. (Essentially, you have dibs.)
Whatever system you decide to use in your rental salon, just be sure you stay in your lane, landlords.
The Salon Landlord’s Toolkit
- Rental Salon Ownership 101: A 22-page comprehensive guide to rental salon ownership
that breaks down everything you need to know in language you can understand.
- The Rent Calculator: A spreadsheet system that will automatically calculate your rental rates for you.
- The Rent Calculator Guide: A 6-page instruction manual that will walk you through the spreadsheet in simple steps so you understand what your numbers mean.
- The Rental Salon Owner’s Lease Component Checklist: What makes a perfect lease that’s appealing to tenants, protects landlords, and fair to both parties? This checklist covers the terms and covenants every great lease should contain.
- The Sample Lease Agreement: Against my better judgement, I have included a sample lease agreement. This lease is not meant to be used as a template, but to illustrate what a formal lease agreement looks like. Feel free to use this tool when drafting your lease terms, but never, EVER use it in your own business until a qualified attorney has reviewed and approved it.