By Dale Willerton
It takes much more to run a profitable restaurant than marketing, managing and menus! With the majority of restaurateurs leasing commercial space, the commercial lease, location and rental rate can dictate much of their success or failure.
Problems often arise when the formal lease (outlining terms and conditions, landlord and tenant obligations, the agreed-up rental payment and so on) is overlooked by inexperienced restaurateurs. These terms can often be successfully negotiated in the restaurateur’s favour. However, many of these tenants may not know what (or how) to ask and can be taken advantage of by far more experienced and skilled real estate agents and/or brokers.
Before opening up your new restaurant or signing a lease renewal, remember these helpful suggestions when negotiating/renegotiating a lease/lease renewal for a tenant:
Tenant allowance advice: Receiving a Tenant Allowance will assist you with doing leasehold improvements. Sometimes you can negotiate to receive some of the money up-front (such as one-third upon signing the offer) so you don’t have to finance 100 per cent of it. Stipulate exactly when the allowance is to be paid to avoid confusion.
Occasionally, a landlord can’t or won’t pay the money as agreed upon. You can try to include a clause that says if the landlord doesn’t pay the allowance, then you will receive 150 per cent of the allowance in free rent. Either way, this provides your landlord with incentive to pay or you with reasonable compensation.
Negotiate to win: Would you play a game only to tie? When it comes to lease negotiating, restaurateurs often do not look at winning and getting the best lease possible for themselves. Landlord’s agents are often paid a hefty commission from the landlord for getting you to sign on the dotted line. With the financial incentive offered, you can guarantee the agent is negotiating to win (and even have the tenant sign for more commercial space or a lengthier lease term than what may be required).
You are the customer: Far too often, restaurateurs act as if they are applying for a lease. If you want to be in the driver’s seat for the lease negotiations, you must remember who is serving whom. The restaurant tenant sets the meeting time. The landlord’s realtor picks up or drops off documents to you and so on. You must never put yourself in the position of the seller. You must always appear to be the buyer.
Determine your bargaining strength: Several factors will determine your bargaining strength with respect to negotiating a new lease or renewal. These include the overall vacancy rate of the building and recent tenant turnover. Your unit’s size in relation to the entire property is also important. It is not only whether you occupy 1,000 or 5,000 square feet, but also what percentage of the building you occupy that counts too.
Real estate brokers: friend or foe? It is not uncommon for restaurant tenants to believe the real estate agent/broker is working for them. However, it should be noted the listing agents’ commission is being paid by the landlord, and even an outside agent may also be sharing that commission. Remember, the higher the rent you agree to pay, often the higher the agent’s commission. Whether a landlord-paid agent can represent two masters you will have to decide for yourself. Brokers and agents do a great job, but who are they doing that job for and who is paying them to do it?
Even the most altruistic agent can’t serve two masters.
About the author
Dale Willerton, is “The Lease Coach”, a Commercial Lease Consultant and author of “Negotiate Your Restaurant Lease or Renewal.” He is a frequent restaurant industry speaker and consults with restaurant tenants throughout North America. For more information, call 1 800 738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com and/orwww.HelpULeaseRestaurant.com. For a free leasing CD, “Leasing Do’s & Don’ts for Restaurant Tenants,” please e-mail DaleWillerton@TheLeaseCoach.com.