March’s Restaurant Prevention Tips
This month’s restaurant prevention tip is about how to negotiate your lease.
Restaurant Lease Negotiations
You’ve found the right location for your restaurant’s “concept”, you’ve done the necessary research, and you’re confident you have enough space inside, parking, visibility, foot and car traffic, and an ideal target market etc., it’s time to look at your lease.
Most restaurant startup owners don’t have a lot of cash, so they end up renting their restaurant location.
Renting a restaurant has several benefits, one, in particular, not having to worry about a large mortgage payment.
You do need to worry about rent!
When you’ve found that right location, it’s time to work out the lease details. It’s imperative that you and the landlord are in agreement with what is expected of you and what is expected of them.
Negotiating the Terms of the Restaurant’s Lease
It’s important that you negotiate and not just settle for the first draft of your rental agreement.
Almost all landlords and leasing companies expect you to negotiate!
~Don’t Lock Yourself Into a Long Lease, at least not the first year you are in business. I know it’s hard to think about, but it’s necessary to consider. If your restaurant fails, you don’t want to be locked for too many more years of rent that you cannot pay. A lease is a legal binding document, and the landlord is within his rights to sue you for the rest of the rent, or, at least, the rent that is owed until new tenants take occupancy.
If the space you want to rent is only available for a long term lease it is not worth the risk.
If the landlord refuses to negotiate, they probably won’t be any easier to work with in the future, and more trouble than space is worth.
What I did-
When I leased my location for Corporate Catering in Clearwater Fl. I negotiated the first months rent FREE and 1/2 the amount of rent for the first three months.
We signed a two-year lease with an option for another two more years, if our business had succeeded the first two years.
~It’s not unusual to negotiate not paying rent at all until the restaurant opens for business.
~Pro-Rating Rent– You may pay a very low rent the first year of the lease, and then gradually increase it each year after that.
~Significant Repairs– If you have to do plumbing, electricity or heating and air conditioning repairs, and then ask if they can be deducted from your regular rent. Most landlords would rather give free or reduced rent one month than shell out cash to make repairs.
~Extensive Renovations– If you are planning on making major physical changes, first find out what is necessary to pass inspection. If you can’t make those changes or it’s going to cost too much, your landlord may work with you. Either way know, this before committing to a lease.
~Bring in the Fire Marshal, Health Inspector and Building Code Office (code enforcement officer) to tell you exactly what needs to be done. After all the initial visits, you may find that renovations will be too expensive to justify that particular location. If your site passes the first phase of inspections, talk with your landlord, which repairs he is willing to cover. Keep in mind, if the location is in a great neighborhood, you may find yourself paying for nearly everything.
~If Space Has Been Vacant– Professionally remind the landlord that you should not have to pay for renovations and repairs that you can’t take with you at the end of the lease. For example, if you have to update plumbing or heating ducts, they are going to stay in the building. If a landlord refuses, then it may be a sign to look elsewhere for a restaurant location.
~Once you and your landlord have come to an agreement on what he will cover, make sure to have (in writing) a plan that allows for unexpected repairs. For example, you are halfway through installing the commercial hood and ventilation in the kitchen when your contractor informs you that new duct work has to be put in place. You should have an agreement that your landlord will cover this unforeseen expense.
If you still have work to do in starting your restaurant and have not gotten to your lease negotiation stage yet, we can still guide you in your successful journey to restaurant success. Please check out our informational resources.
It is also to your advantage to have a Professional Lawyer to represent and look over any legal documents you’re signing and agreeing.
If lack of financing is stopping you from hiring a lawyer, A Legal Shield lawyer is your BEST option. I know one personally and back them 100%
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Much Success in your lease negotiations!