Advice for Buying a Restaurant and Selling a Restaurant

Leasing a Restaurant is Harder Than You Think

Posted by Robin Gagnon on May 11, 2013 7:48:00 AM

leasing a restaurantIt seems simple enough.  You drive down the road and like the childhood game of “I Spy,” played with your sisters and brothers in the car, you spot the vacant restaurant for rent in the shopping center.  It’s the perfect location.  It seems like the right size.  There isn’t another pizza place in the shopping center (your concept).  Lastly, it’s close to your house.  Immediately, you whip out your cell phone, make a call and get connected to the leasing agent. STOP.  You just made your first mistake in leasing a restaurant. Here’s why.

The leasing agent who took your call works for the landlord.  He is under contract for the landlord.  That means he or she has no interest in protecting your concern in the transaction.  His loyalty is to the person paying his bill and that isn’t you. 

Here’s what the Landlord’s Representative will tell you.    

  • Base rent level
  • CAMS
  • Size of Space

Here’s what he won’t tell you

Why the last guy left

If the last tenant was a pizza place that defaulted on the lease because the guy one shopping center over has a lock on the business for a three mile radius, he’s under no obligation to tell you this.

If he’s Overpriced

If the average rents in this area are $15.00 per square foot and they are charging 20% more because the landlord “wants” that number, he’s under no compunction to share that information.

If the Infrastructure is Sufficient for a Restaurant

If the HVAC unit is 2 tons for 1400 square feet (undersized for a restaurant) and the last restaurant shut down because the patrons couldn’t take the heat, he won’t feel the need to disclose this.  Likewise, if the electrical panel is a basic 200 amp one that shut down every Saturday night as soon as they brought on the extra pizza oven to handle the traffic, he probably won’t feel the need to reveal that information if you don’t ask.     

If Competing Properties are Available

If the restaurant space in the next shopping center (owned by a different landlord) in a better location is available for less rent, he will feel no requirement to share that since he doesn’t represent that shopping center.

Is it becoming apparent why you should STOP before calling the number on that sign?  Want to know what to do instead?   

Contact a restaurant broker to represent your interest in the transaction.  There is no additional cost to you for this effort (at least not from We Sell Restaurants).  When our restaurant brokers represent your interest they will:

1)      Give you an overview of other operators in the area and any information available on how they are doing

2)      Review comparable and/or nearby centers for lease rates and availability (even if listings aren’t publicly known).

3)      Ask the landlord to provide HVAC, Electric, Grease Trap and Hood information/capacities so you can verify with your contractor, electrician or architect whether they will handle your equipment and/or cooling needs.

Here’s what the Landlord’s Representative wants from you

  • Personal Financial Statement
  • Menu
  • Business Plan
  • Lease Application
  • Maximum Rent
  • Maximum Personal Guarantees

The Restaurant Broker will have the forms, documents and templates to prepare you for submission to the landlord including personal financial statement forms, business plan templates and applications.  He will review the data before it is submitted so it puts you in the strongest negotiating position.

Here’s what the Restaurant Broker will negotiate to get FOR you

  • Best Base Rent Rate
  • Best CAMS deal including locks, fixed levels or maximum increases
  • Minimal Personal guarantees
  • Exclusivity for your concept
  • Vacancy clauses

It seems pretty apparent to the restaurant brokers that leasing a restaurant is a little tougher than simply the childhood game of “I Spy” and a phone call.  Do you agree?

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Topics: Leasing a Restaurant