Tag Archive for "restaurant lease" - Restaurant Rentals & Sales

January 28, 2019

5 Common Trouble Areas of Restaurant Leases

Opening a restaurant is an exciting venture, indeed; but finding the ideal space to lease can be challenging. From the moment that you decided to open a restaurant, there’s no doubt you began conducting massive research from the get-go, including market investigation to determine if an area will prove lucrative for your restaurant business, to getting familiar with your competition and defining how you will set yourself apart and finally finding the perfect spot. It is likely that perfect spot involves a lease and getting in a hurry to tie up the property can lead to a multitude of issues, if you are not careful. Below are some of the items commonly found in restaurant leases that can result in nightmares if you’re not careful.

#1 Common Area Maintenance (CAM)

The rental of square footage is not the only thing you pay with a retail lease. You will also pay a pro-rata share of expenses to maintain the property, referred to as Common Area Maintenance (CAM). CAM fees are accrued and billed in various ways; ranging from monthly, quarterly, or annually and sometimes may be assessed based on repairs, upkeep of common areas, security systems and even taxes and insurance.

In regards to common areas, those may include bathrooms, parking lots, lobbies, elevators, and landscaping. CAM can be a tricky thing for tenants. Landlords like to put in language that permits them to cushion the expenses (i.e. asset management fees for the owner on top of property management fees) and this fee is oftentimes termed as an administrative fee that permits the landlord to charge tenants as much as 15% of the expenses incurred.

One major factor of CAM is that it can also contain capital improvements of the property. These go beyond standard repair and maintenance and although such improvements will inevitably benefit current tenants, including you; the landlord will continue to benefit for years to come. The reason for mention of the CAM is that such fees can result in a major upfront expense or recurring additional charges that you didn’t budget. Therefore, when reviewing lease terms, make sure that controllable expenses have a CAP on how much they can increase any year. The landlord can do little to affect insurance and property tax fees, but they can regulate how much is charged for asset or property management fees.

#2 Landlord Matters

Get acquainted with the landlord prior to signing a lease. A landlord could have the greatest personality ever, but bottom line, you’ll be running a restaurant business to make money and he or she will be overseeing property to make money as well. Some landlords are great, but do your homework and check with other tenants to be sure the landlord is responsive when issues come up and also verify that matters are handled promptly and efficiently.

Regardless of how likeable a landlord is, there is no guarantee you will be interacting with that same person for the tenure of the lease. Naturally, there are landlords who have the best of intentions and might act in 100% conviction, but at some point they will sell; and because of this, get the details in writing.

#3 Get It In Writing

While in a perfect world, someone’s word would be enough, protect yourself and your restaurant business by getting everything in writing. Ambiguous lease terms could lead to problems, and in the event the property changes hands, you want to ensure the terms protect you and alleviate the possibility of lease-price increases or an unexpected termination of the lease.

Lease Term

The location of your restaurant plays a major role in ongoing success. You may have the best food and service around, with customers’ coming from near and far. But what happens if you’re forced to move? If the terms of your lease do not secure you in a specific location long-term, it could be detrimental to your business. You can extend the term of the lease with options, such as in a unilateral agreement, which essentially holds the landlord to additional years on the lease. In addition to this, the unilateral agreement allows you, the operator to exit the space at the end of the original term. This is a great way to secure a property for 20+ years without 20 years of fixed liability.

#4 Exit Strategy

Protect yourself and ensure the fine print of the lease does not lock you in for a prolonged period, if business dynamics were to suddenly change. A number of possibilities could incur while conducting business. Naturally, no one enters business with the anticipation of failure, but unfortunately it happens. An unexpected sickness or injury could occur; a partner may suddenly throw in the towel and walk out, or licensing and permit issues may arise. Then, there’s also the alternative positive aspects such as receiving an offer of a lifetime to sell your restaurant; regardless of the potential possibilities, have an exit strategy defined in the lease.

If a landlord is ethical and wants tenants to succeed, then lease terms that are renewable on an annual basis are beneficial. However, if you encounter a potential landlord who refuses to offer any leniencies, it is probably an indication they will be difficult to work with later on.

#5 Signage

Read the details of the lease and make certain that you can install the signage you want. Depending on your locations, signage regulations and permit fees can fluctuate substantially. Multiple forms of signage are recommended and typically include having access to the road pylon, as well as raceway signs on the front of the building and window signage. Verify the lease details regarding size, location, lighting and aesthetics where applicable.

These are some of the more common issues encountered with restaurant leases. Prior to signing a lease, take into account that it is much more than a monthly payment. It is not uncommon for a restaurant lease to consist of twenty or more pages with a multitude of provisions. For this reason, oftentimes, it is beneficial to consult a commercial restaurant real estate broker or agent who is experienced in negotiating restaurant leases. This individual, an expert in the operations and lease structure needs in your business environment could become a valuable asset to your team and help set you up for success in your restaurant business.

December 26, 2018

What You Should Know About Finding a Restaurant Space for Lease

Let’s be honest, finding a restaurant space for lease is a rather frustrating and time-consuming process. It’s true, and as if that’s not enough, the risk of choosing the wrong location is pretty high.

You see, there’s a good reason as to why most restaurants fail and while poor decision-making is at the core, location is often the cause. In other words, the location of a restaurant is critical for success yet the importance of site selection is often a factor which many restaurant owners seem to ignore.

But what makes a good location and how can restaurant owners avoid this common mistake?

What to Consider When Searching for a Restaurant Space for Lease

Well, there are many factors which can influence the fortunes of a new business and it’s not simply a case of finding a restaurant space for lease. Budget will inevitably impact the final decision but facilities and local economy are just as important. At the same time, taking a macro view of the area is critical, for long term stability is needed for a restaurant to flourish in a new location.

For example, neighborhoods can change quickly and the truth is, even one or two miles is enough to impact the chances of success for a new business. With this in mind, many restaurant owners can end up in trouble as the location is simply a poor choice or their primary reason for choosing that location may have disappeared.

Either way, choosing the right location is critical and here are some important factors to keep in mind when searching for a restaurant space for lease:

Research and Ask the Right Questions

As a rule, there’s no such thing as the perfect location and every area will have a diverse range of unemployment, salary and source of jobs. At the same time, you should still find that some areas are more prosperous than others and through research, you can start to ask questions that will identify locations with the most potential. For example, what type of jobs or professionals are common in the area? Is the median salary increasing or decreasing? What large factories or companies are in the area? Is the number of jobs rising or falling?

Remember to Stick to Your Plans

If you end up with a real estate broker, remember to stick to your guns. After all, most brokers are reliant on commission and so advice can be somewhat biased or less calculated than you would like. Now, that’s not to say every agent wants to take advantage but through your own due diligence, you should have criteria for this site selection and sticking to this formula is often better than simply trusting the advice of a real estate agent.

Keep Your Intention and Budget Under Wraps

When it comes to negotiations, keep your intentions and emotions in check. For many listing agents, the main objective is to find the highest bid. For this reason, if they know your budget, you can be sure that the agent will push for the closest possible fee to this amount. On the other hand, if you remain neutral and try to conceal whatever budget you have available, you can retain more control over the initial asking price.

Avoid Repeating the Mistakes of Previous Tenants

As you know, existing infrastructure plays an important role in the site selection process. For example, when a property is already fitted with a kitchen, bathrooms and proper electrics, this can offer a ready made location for restaurant owners. However, great care should be taken with these properties and this is especially true if the property was the site of a previous restaurant.

The truth is, there is often good reason why these “burn locations” were often unsuccessful in the past. That is to say, when you find a restaurant space for lease, this may be the remnants of a previous restaurant which failed due to an ineffective location.

As you can see, site selection is critical and location is usually the most important aspect of finding a restaurant space for lease. After all, you can improve or renovate a property as much as you want but easily changing location is neither realistic, feasible or possible. Either way, take time to do your own due diligence and know that the research you put into choosing the right location for a restaurant will be a defining moment in the history of your business.

November 20, 2018November 20, 2018

Starting a Food Service Business without a Traditional Retail Restaurant Lease

Starting a business is not easy. There is the question of capital, labor, taxes and location. All of these things tend to make most people interested in starting a business strongly question whether or not they want to do it.

Multiply these factors by ten, and you have an idea of what it is like starting a restaurant.

The return on restaurant startups can be volatile, to say the least. Once you take everything into consideration – labor, food cost, utilities and location, your dream restaurant concept can turn in to a paralyzing affair.

Location is one of the main things to consider. Most young people enjoy the convenience of delivery and take out. The best locations to start a restaurant that meets these needs are extraordinarily expensive. Cheaper rents can be found in outlying, light industrial areas. There is a tradeoff, however. Potential patrons are unlikely to venture in to a decidedly “uncool” space.

There is a solution, though….the Ghost Kitchen.

This is not a place where pots and pans clang together for no reason, and people get a chill just walking inside of it. Instead, it is a way for entrepreneurs looking to start a restaurant.

Ghost kitchens are like the AirBnB of the restaurant world. Different entrepreneurs and franchise owners use a shared space to create dishes, serve customers and meet the needs of the delivery world, all without having to worry about paying a lease or exorbitant buildout costs. A shared space, ghost kitchens can find and rent the space without the worry of meeting the high price of retail rent.

Another advantage of a ghost kitchen – they are not open to the public. This means a significant savings in capital. The only expenses are food, utilities, human resources and marketing. Unlike the fixed costs of rent and retail space buildout, these aforementioned expenses are not fixed, and if you are not certain that the general public will be as crazy about your concept as you think they will, you are not committing in the long term. You are able to have your cake and eat it too, by starting in a low overhead kitchen, but still able to test your concept.

Using services like Uber Eats, it gives the restaurateur time to learn valuable information about its customer base – what they like and don’t like, what their delivery times are and whether or not it is worth it to open a full customer centered stand alone. When you work out the tweaks in your concept and food offerings, you can take the next step….signing a retail lease…when you are much more certain of its success.

Several large, metropolitan cities have successfully experimented with ghost kitchens, and the trend is certainly on the rise across the U.S.