- March 3, 2016
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Often thought of as a four-letter word, the restaurant lease is typically long, typically confusing, and contain more information than just your rental amount and term. They are the ironclad keeper of everything that makes – and breaks – your business and should be given extra time and attention in order to avoid costly future issues.
Negotiating a Lease for Restaurant Space
More so other types of commercial real estate, those seeking restaurant space should pay very careful attention to the contents of their lease. In order to protect their business there are certain clauses and options that restaurant leases should contain. Here we outline some of the more the important negotiable items to consider before signing on the dotted line for a restaurant space lease.
Top Tips for Negotiating Your Restaurant Lease
This is pretty much where it all starts (and ends) in a restaurant lease. When negotiating your rent payment pay attention to the following:
- Vacancy: How long has the restaurant space been on the market? Considering what condition the space is in, you may be able to negotiate a lower rent payment.
- Percentage Rent: During the lease negotiation process you may be confronted with a “percentage rent” requirement. Basically, this means that when your restaurant sales reach a certain amount, you must begin paying the landlord a percentage of your revenue. Sounds unfair right? We say avoid this if possible, but if you absolutely can’t remove it from the lease make sure to negotiate fair terms.
- Start Date: Yes, you can negotiate when you start paying rent, and it doesn’t have to be when you actually occupy the space. Many landlords will waive rent during build-outs, until building permits are obtained, or until a tenant actually opens their restaurant for business.
During the negotiation of your restaurant lease it is very important to do a thorough inspection and properly document all necessary repairs. Make sure to explicitly establish who is paying for alterations prior to signing the lease. It is generally accepted that any repairs to the restaurant space that will be there when you leave, i.e. roofing, plumbing, will be the responsibility of the landlord/owner and will be deducted from your rent.
It’s been your dream for as long as you can remember to open your very own pizza restaurant. You finally realize this dream, and then 2 months later another pizza shop opens 3 doors down from you. Not cool, we agree. When negotiation your restaurant lease make sure to include an exclusivity clause that protect you from direct competition in your immediate vicinity or shopping plaza.
Jimmy always wanted to open a Thai restaurant. Soon after signing his restaurant lease Jimmy realized he is acutely allergic to peanuts and would rather run a Daycare. By adding in a use change clause to his lease Jimmy has guaranteed that he can continue to use his space in accordance with his lease. Be like Jimmy.
What happens if your restaurant isn’t performing? You don’t have to hit rock bottom before you get out of your lease (or even still be stuck with it). You can negotiate a one-time exit to your lease tied to specific time period and revenue. I.e., If within X days you have not reached X% of sales you can cancel the lease.
Opening a restaurant is a risk, so what happens if things don’t go as well as you had hoped? By adding a subletting clause into your lease you protect yourself from being stuck with a rent payment for a closed restaurant. Be sure to pay particular attention to restrictions on that future tenant.
Remember, operating expenses are always negotiable. From property taxes to property management, make sure to define who is paying for what in the restaurant lease. Fair warning: there are landlords out there who try to throw in non-standardized costs like admin fees or cap improvements. If you don’t see them before you sign on the dotted line you will be legally required to pay them, and that won’t be fun.
Need Help? Use a CRE Professional, They’re Free!
As a leasee of commercial real estate you are not typically going to pay any broker commissions as this cost is often assigned to the landlord or owner of the property. Knowing this, you should always consult an experienced retail CRE broker before entering into any legally binding contract for space. A knowledgeable commercial real estate broker will guide you through the entire process of leasing restaurant space from site selection to rental rates, ensuring that you are fully versed and protected. If you are seeking restaurant space in Baton Rouge, or surrounding areas, contact one of our dedicated Advisors today.A lease can make - or break - your #restaurant. Make sure to negotiate these points before signing on the dotted line. Click To Tweet
About Us – The team at SVN/Graham, Langlois and Legendre has over 99-years of combined experiencing helping clients across the Baton Rouge area get the most value out of their CRE investment. Contact one of them today with any questions you may have and start seeing the returns in a market that will make sure to give today, tomorrow and for the extended future. To reach us, you can call us at 225-367-1515 or you can send us a message on our website. You can also follow us on Twitter at @svngll or on Facebook.