Restaurant owners who believe they’ve found the ideal space to serve their customers can use a few tricks to get the best possible deal on their commercial real estate lease. It all starts with understanding the terms laid out in the many pages of the official document. A restaurant lease is far more complicated than a set rental price every month, and restaurant owners who only look at a single price point may find themselves spending more over time than a seemingly more expensive lease. For those who want to cut through the hassle, it’s time to learn more about how to keep costs down without endangering assets.
Answer the questions.
Restaurant leases may be official documents, but they’re flexible enough to include a number of different provisions. Most restaurant owners don’t consider the potential legal hassles they may encounter if their paperwork is too rigid.
For instance, a restaurant lease that prohibits subleasing will be extremely limiting if the restaurant needs to unexpectedly close due to poor sales. If the neighborhood happens to explode in popularity seemingly overnight, the landlord could raise the rents significantly if the lease doesn’t exclusively protect the tenant. While many of these factors are determined by the area a restaurant owner operates in, landlords will sometimes grant a grace period for rent increases so an owner can better plan their budget.
An owner will have to make a list of what matters to them and what they would be willing to compromise. For example, they may take a hard stand against percentage rent (or the necessity of paying a landlord a percentage of sales if they exceed a certain threshold for the month.) Maybe an owner will only accept a lease if they can guarantee they’ll be the only restaurant of their kind in the general neighborhood (e.g., the sole pizza parlor within two miles of their location.) Once an owner settles on a few crucial goals, they can enter negotiations with both eyes open.
In terms of a landlord’s priorities, they’re usually more willing to work with restaurant owners who make a solid commitment, so keep this in mind before asking for favors.
The devil is in the details.
Tenants may be asked to cover far more than they ever realized in the cost of their restaurant lease, so it’s important to detail exactly what they’ll be paying for. A triple net lease has the tenant pay not only the rent, but also utilities, property taxes, repairs, and insurance on the space. In other cases, a tenant can make their lease contingent on whether or not the landlord can pay for certain repairs or alterations they feel need to be completed before taking over the property. When it comes to these arrangements, the lease should list all of the agreed-upon expectations of the tenant and the landlord: what needs to be done, who’s in charge of organizing it, who will be paying for it, and whether or not a tenant will have to undo the work at the time of move-out.
Seek legal help.
Because not every situation between a landlord and tenant can be addressed, the wording of the restaurant lease is tantamount to the outcome of the residency. Without a qualified real estate or legal professional, it will be difficult to ensure that all points are being covered correctly. The good news is that landlords may pay for broker commissions, so owners can get advice from a broker (at no cost to them.) These consultations can help them formally lay out their expectations so there’s no confusion later on.
Despite this, owners are encouraged to have their own lawyer look it over in case the broker missed something or had their own agenda to help the landlord rather than the tenant. Restaurant owners opening in particularly popular areas will be granted fewer concessions, but it’s certainly not impossible to negotiate better terms.
When a restaurant owner is getting ready to open up shop, they have a seemingly never-ending list of things to do. It’s understandable if they don’t want to read over up to 40 pages of a lease so they can dissect the meaning of every last clause. If they’re not paying attention to their lease terms though, they could potentially endanger their livelihoods by putting themselves into a no-win scenario.
Doing some prep work and having the right legal counsel can make it easier to ensure both tenant and restaurant owner can get what they’re looking for.
Curious about what else it takes to open a brand-new restaurant? Download our free worksheet “The Essential Checklist to Opening a Restaurant” today!
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Kris Lindahl is a Minnesota native and owner of The Kris Lindahl Team with RE/MAX Results. Kris believes a great business starts with a great foundation and the right real estate arrangement for its specific needs.
Rewards Network® does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.