restaurant business plan

Restaurant Leasing

Restaurant leasing is no easy task, and horror stories are a Dime a Dozen with commercial leases. It always pays to work with a good Real Estate Broker and Attorney while negotiating the lease who understands what your needs are.

Always consider the resale implications when negotiating a lease. Resale value is often made or broken on several points:

1. Obtain a long term lease with options. A five year lease with three five year options always works!

2. Lock in your increases based on reasonable numbers such as C. P. I. increase s with a percentage cap.

3. Obtain the right to assign or sub-lease your space and obtain a clause whe re landlord cannot unreasonably withhold an assignment.

4. Be aware of unreasonable Percentage of Sales clauses

5. Avoid renewal clauses based on sales levels

6. Avoid Assignment Clauses that automatically cancel Options to Renew upon t he Sale of the Business

7. Do obtain concept exclusive rights if in a Mall or center.

8. Do not accept an "Open" option to be negotiated at option time.

9. Beware of the "Landlord's Lien" provision. Understand fully before executing lease.

10. Do not sign any lease with a "Kickout" clause based on possible future events with the real property.

11. Do fully understand the default provision of the lease.

12. Do "Flag" landlord notices required to exercise your option. Some Landlords require up to 180 days notice.

13. If Merchants Association is a requirement review the by-laws and talk to other tenants. Is it working?

14. CAM (Common Area Maintenance) clauses are often future deal killers in the resale of a restaurant, and if you don't negotiate a favorable CAM agreement at the beginning of your relationship with the property owners, it may just break you before you decide to cash in!

Professional assistance is paramount when negotiating a lease with a Shopping Center or any other location that requires the payment of Common Area Maintenance.

Many leases are "NNN" where the tenant agrees to share building insurance costs, taxes and CAM with the other tenants in the center based on square footage of their space. Taxes and insurance costs are fairly easy to document but CAM cost can cover a mydrid of expenses which can be anything from snow and ice removal to decorations for the mall or shopping center. They can easily run rampid, often escalating to an unfavorable cost for the tenants.

The horror stories include charges for leasing agents office parties and entertaining prospective tenants. We have seen cases of poorly managed Centers where the CAM charges have equaled or exceeded the base rent! We have also had the misfortune to represent clients who had entered into a lease agreement with excessive CAM costs which prevented the owner of the restaurant from selling their assets and good will.

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