Advice for Buying a Restaurant and Selling a Restaurant

Master the Art of Leasing A Restaurant with These Ten Tips

Posted by Robin Gagnon on Oct 23, 2018 3:57:53 PM

Tip One – Don’t Talk to the Guy on the Sign – He represents the landlord.

 When leasing a restaurant, it’s tempting to drive past the newest center or latest sign and make a call on the space.  Take a moment and consider who that person represents before hitting send. Landlords employ leasing agents to represent their interests, not those of the would-be tenants. It’s best to make sure you have your own representation. 

Is it fair to make the first call, get excited about the space and then send in your broker?  Not really.  Just work with a reputable restaurant broker and have him or her make the first outreach on any space.  They know the landlord language, math and standard deal terms.  

Tip Two – Don’t get trapped by TI money or Tenant Improvement Money when leasing a restaurant without understanding the cost.

It’s tempting to believe that Tenant Improvement Money or TI money is free to you.  These are funds that the landlord repays you for the investment you make in the space for the build out.  There will never be enough money in tenant improvement funds to build out a space.  It’s a contribution by the landlord, not the entire cost.

Be careful not to get so excited by a large tenant improvement number that you forget to do the math on the back end.  We see many operators in very high cost leases because the TI money gets built back into the rent over time. Just think of it like borrowing money with the payment built into the rent over a very long (lease) instead of loan term.Mastering the art

Tip Three – Make key date contingent on permitting and things beyond your control.

It’s a good idea to make your rent commencement date (something entirely different from the lease start date), upon issuance of certain permits or licenses.  That way, if you get blocked by city hall or must wait four months to even get a permit to swing a hammer, you’re not paying rent on space where you’re not selling food.

Tip Four – Limit the personal guarantee to the extent you can when leasing a restaurant.

Everyone wants to avoid a personal guarantee where possible but that’s not always an option.  Instead of trying to wish it away, negotiate the terms.  Make sure the lease is assignable and when assigned, your liability is gone.  Constrict the personal guarantee to a limited number of years or certain amount of on-time rent payments.  The key here is to negotiate BEFORE signing a lease.  That’s when you have the most leverage.

Tip Five – Go for multiple smaller terms and options versus a single long-term lease to limit your liability.

Leasing a restaurant is a multi-year commitment but break these terms up over time.  Consider that the area, the market, the business or your success may change over the course of the lease.  Never go into a ten-year lease when you can get a five-year lease and a five-year option.  If it’s possible to get a three-year, go for that.  Why?  When it comes time to exercise your option, you can say, “no thank you,” and move on rather than be stuck in a long-term agreement liability for all the remaining years on the lease.

Tip Six – Cap your CAMS when leasing a restaurant.

Plenty of people will tell you that it’s impossible to negotiate the CAMS, Taxes and Insurance when leasing a restaurant but it’s certainly possible to cap them.  You don’t know what the future will hold so guard against continual increases by stating you are only liable for a single year increase of no more than ten percent or something similar.

You’ll never have as much leverage with the landlord than at the outset of the relationship.  This is when you need to use everything you must control your overall occupancy costs in the years ahead.  

Tip Seven – Limit your requirement to pay based on occupancy when leasing a restaurant.

Don’t be the last remaining ghost occupying a space after everyone moves out, unless the rent is so inexpensive it doesn’t matter to you.  Write an occupancy clause into your lease that states that if the center drops below a certain threshold of leased spaces or if the anchor tenant vacates or similar, you get a substantial drop in rent.  Landlords are likely to give you this one as they never expect their center to go dark or their anchor tenant to leave.  If it happens, you’re protected.  Don’t overlook this tip.  Other tenants drive traffic to the center.  Without them, your business will be affected.  

Tip Eight – If you’re leasing a restaurant, use a Restaurant Broker, not a general commercial broker.  

A new restaurant space or even an existing one, requires the knowledge of an expert.  A general broker won’t understand or have specialized knowledge in grease traps or vent hoods along with local codes.  He or she may not understand permitting requirements, particularly those for alcohol, that would make this space a non-starter.  They will not know how many more tons of HVAC is required for a restaurant space versus retail since cooking and the body counts dramatically increase heat and lower air movement. 

It’s worth it to have an expert on hand, particularly since the landlord is usually the one picking up the check.  Commissions are rarely paid by buyers leasing a restaurant space.

Tip Nine – Don’t overlook an asset sale. 

An asset sale is an existing restaurant that may not be performing well today but can easily convert to your concept.  By acquiring someone else’s business instead of leasing a restaurant, you can often assume the remaining term at under market rates.  Modify the build out and you’re ready to go.

Tip Ten – Don’t Bite Off More than You Can Chew when Leasing a Restaurant

What does this mean?  It’s easier to grow into a larger space or do more delivery and catering from something slightly smaller than it is to pay the rent on a space that’s too large.  This is the single largest mistake we see in those leasing a restaurant.  Estimate what you need and then LOWER it.  In particular, with take out and delivery services reducing bodies in seats, restaurants today need much less space than even five years ago.  Err on the side of smaller, not larger.

That’s it.  Our ten top tips on leasing a restaurant space.  Use these techniques and you should save yourself some money and get the best possible space for your business.  Need some help leasing a restaurant?  Reach out to the team at We Sell Restaurants.  We can help.

 

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Topics: Leasing a Restaurant

Want to Be Amazing at Leasing a Restaurant?  Here's How.

Posted by Robin Gagnon on Sep 6, 2018 11:30:00 AM

Everyone wants to believe they are the best any anything they try.  When leasing a restaurant, however, the landlord will often have the upper hand.  Here are the tips from We Sell Restaurants so you can be amazing at leasing a restaurant, giving you the best chance at getting the space you want at a price that's right for your concept. 

Begin with the Concept

The landlord's first question when leasing a restaurant to a new candidate is to understand the concept you have in mind. Is it new to the market?  Do you have existing locations?  Is it a fad trending out or trending up?  Do the demographics of his center seem conducive to the style of restaurant?  Will it draw unattractive noise, create parking issues or conflicts with other tenants?  All of these items are on his mind so before you inquire about leasing a restaurant, make sure your ducks are in a row.Here's how to be amazing at leasing a restaurant

It seems simple but too many people looking to lease a restaurant approach the brokers at We Sell Restaurants or landlord without a firm concept in mind.  You must have your menu and your business plan.  You must have a clear idea of how it fits into the center, its demographics and how it will compliment, not complicate the other tenant's lives.  Only with a firm grasp of these principles can you determine the best location for your concept. 

If you don't have all this information in a written format as part of your business plan, you're not going to be amazing at leasing a. restaurant and you're going to get a turndown.  Move from a dream to reality by putting your ideas on paper, together with a menu and pricing.  Easily pull demographic information from online resources like government databases at this link and you'll increase your odds of beating out competitors and leasing a restaurant in the most desirable part of town. 


Set a Budget - Based on your Business Plan

How many seats to you need?  How many times will you turn over the tables in a night generating how much revenue?  Does your idea cry out for patio seating or space for live music to set up?  Starting down the path to leasing a restaurant space means you have to put all the details together. The size, number of seats, times you turn over the seats per night and outdoor seating bring you to an estimate of revenue.  That tells you how much rent you can afford.

Leasing a restaurant space because it's in the "hot" part of town without making sure you can cover occupancy costs is a recipe for disaster. You won't be amazing; you'll be astonished at how quickly you go out of business.  Don’t start shopping and leasing a restaurant space without a full understanding of the revenue and expense line.  If you need help with a business plan, try local resources like SCORE found at this link or a local college or university who may have an entrepreneurship community outreach or business incubator program.  They may just have an MBA program willing to take your plan on as a team project. 


Test your Concept – Consider Doing a Pop-Up

Everyone's excited and ready to go to market but if you want to be amazing in your approach, why not try it on for size first?  Consider doing a pop-up restaurant.  

A pop-up restaurant is an idea that gained steam in the last few years.  Instead of a fixed space, an unused restaurant space may be used by a number of concepts for a short run of their concept.  Invest the time and money in building a following through a pop up concept before you commit to the recurring cost of a monthly lease.  Take that valuable customer input and further develop the menu, build a social media following and then be ready to share that with any potential landlord.  It’s also a great way to build investor support for your new business before leasing a restaurant.


Begin Shopping for Restaurant Lease Space

Once these steps are complete, you're well on your way to being amazing at this process.  You can now begin shopping for a location.  Begin your search for leasing a restaurant on line and on the roads.  Contact restaurant brokers in the market and start looking at options online.  One resource for lease space is loopnet.com.  Check them out but before inquiring, make sure you have someone working on your behalf.  The person posting the ad is usually (though not always), working for the landlord.  Because you have done the work listed above, you now have an understanding of the size, budget and location.  Look at you!  You're already amazing at this and ready to get the best possible location


Don't Forget Second Generation Space

In particular, ask brokers if they have second generation lease restaurant space.  This is a great way to get more for your money.  A second generation space means it was previously rented for restaurant use.  That means the location will have existing infrastructure, typically walk in freezers or refrigeration, hood and grease traps. That’s money you will save over going into a new center that has never been built out for restaurant use.


That's it.  Follow this plan and you're going to land an amazing restaurant for lease space for your new restaurants.  Let us know when you're open for business.  We want to check it out.  For restaurant space for lease listings, click the link below. 

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Topics: Leasing a Restaurant

The 5 Biggest Restaurant Lease Blunders to Avoid

Posted by Robin Gagnon on Aug 13, 2018 6:02:53 PM

Leasing a restaurant?  Here are five clauses you need to include.  Without them, you may see yourself on the hook for much longer than you planned if you ever sell the store.  Trust us.  As restaurant brokers, we have transferred dozens of restaurant leases.  Our best advice to you is to avoid these blunders now so you can transfer the store with no issues later.   

The most common error in negotiating a restaurant lease is the failure to plan for an exit strategy. No one enters business expecting to fail but it can happen.  Partners get sick or walk out of partnerships. Couples divorce, or liquor licenses get pulled.

On the flip side, businesses sell. You get an offer you can’t refuse. The guy developing a new brand in your market wants your location and your location only. Your partner wants out and you want in and the only solution is to sell your restaurant.

There are countless reasons why a business owner will need to get out of the restaurant lease. We recommend you have an exit strategy at the time you negotiate the initial terms.  Generally, this will not be found in the first draft of the landlord’s restaurant lease and you need to fight for these terms.  Avoid these blunders by including clauses that handle the most common transfer terms.  If they aren’t there, you or your restaurant broker need to fight for them.   elly fisher's

Blunder One – Failing to consider the transferability of the restaurant lease

Restaurant lease transfer is the single most contentious issue in the sale of a business and kills more deals than anything else.  Your only power in this negotiation is at the outset of the restaurant lease, not when you’re ready to sell. Make sure the terms of the restaurant lease spell out how it will transfer it to another party.

Blunder Two – Letting the landlord load up experience clauses

You may enter into a restaurant lease with a landlord with lots of experience, but always think in terms of selling the store at a later date. Plenty of successful individuals enter the restaurant industry without experience, but that doesn’t preclude their eventual success. Landlords often will try to sneak language into the restaurant lease that requires five years of restaurant experience, even for franchise operators and it can severely limit the pool of buyers for your business.  Do the reverse and ask for an automatic approval if they are approved as a franchisee.

Blunder Three – Not getting the costs up front

Determine up front what the amount of the transfer charge or assignment fee will be.  Never agree to vague language like “reasonable” attorney fees.  What’s reasonable to you is totally unreasonable to someone else.  Define this term.  Identify the amount you’ll pay in a transfer so you know what it is and insure that it’s minimal ($500 to $1000 is appropriate).  We have seen transfer fees go to exorbitant levels ($10,000) in recent years.

Blunder Four – Leaving a transfer time undefined

Landlords will never move at the speed of business.  Just when you are ready to sell, they are working on other projects and a restaurant lease transfer is their lowest priority.  Try to force a specific time frame into the language, such as “transfer shall occur within thirty days of submission of a formal request.” Landlords are famous for dragging out deals. When you’re negotiating the original restaurant lease, you’re in the driver’s seat. When you want to transfer it later, you’re no longer a priority.

Blunder Five – Failing to protect the confidentiality of your business

Landlords have a lot of information on you including store sales, your earnings and much more.  Never sign a restaurant lease unless the landlord is held to the strictest confidentiality.  He or she often receives the purchase agreement and you don’t want them disclosing what your store eventually sells for.  Make sure landlord should be held to confidentiality on the terms of any future sale of your restaurant. 

That’s it.  Include these terms and avoid five blunders that will cost you time and money when you get ready to transfer your restaurant lease.

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Topics: Leasing a Restaurant

7 Secrets about Restaurant Leases the Landlord Will Never Tell You

Posted by Robin Gagnon on Aug 3, 2018 12:16:18 PM

Owning and operating a successful restaurant business epitomizes the American dream for most.  Selling your restaurant and attempting to transfer the lease can be a nightmare however.  Here are the seven secrets in the process for transferring a restaurant lease the landlord will never share.  Those buying or selling a restaurant should get familiar with these tips before drafting a contract to buy or sell a restaurant.  Here's Seven secrets about restaurant leases the landlord will never bother to share. 


Cocktail 21st Birthday Blog Graphic (1)Secret 1:  Include a Contingency for the Restaurant Lease Assignment

Any contract to sell should include a contingency for lease assignment.  Why is there a need for a restaurant lease assignment contingency?  Some landlords will take advantage of an assignment situation to raise rates, remove option years or otherwise increase costs of a restaurant buyer.  That could dramatically change the numbers on the transaction. 

The buyer should have a contingency to allow for transfer of the existing terms and any option years at the same rates.  After all, if you’re buying a restaurant based on rent of $5500 a month and the rent goes up to $6500 a month, that extra $12,000 comes directly out of earnings.  You’re buying a restaurant based on the past performance.  The lease is baked into those results. Review and understand the lease terms in the due diligence period and include a contingency for assignment of the same lease.


Secret 2:  Make Sure You Understand the Assignment and Sublet Clause

Before doing anything, you (or your restaurant broker), should review the Assignment and Subletting portion of your lease.  What does the lease state as the terms for a lease to be assigned or sublet?  The difference is a legal one, but a simple business explanation is this.  Assigning the lease, typically, moves the financial responsibility to the buyer.  A sublet means you become the intermediary and collect the rent.  Most leases do not allow any form of sublet and instead allow for an approval process to approve and assign the lease to the new tenant. Here's a secret the landlord won't share.  You can have auto-approval clauses and caps on costs and all kinds of good stuff that limit a landlord's ability to charge you fees and keep you on the lease but the landlord will hold that secret close to the vest.  Instead, his attorney will bully through an assignment that is not in your favor.  Be informed to avoid taking on liabilities you don't need.  Read the assignment and sublet clause. 

The best leases are those that contemplate a change of ownership up front.  In those cases, there’s essentially an ‘auto-approve’ clause.  It may be written like this:  “Seller may assign the lease without the consent of the landlord in the following instances.  The buyer can demonstrate a net worth of $1,000,000 or more with 5 years of relevant restaurant ownership/management experience and approval by the franchise brand.”  Language like this means your landlord cannot deny approval when these conditions are met, saving you the effort of an approval and providing your restaurant broker up front, the financial and experience requirements of any would-be buyer.

If your lease does not say something similar to this, look for the language that spells out exactly what must take place.  In particular pay attention to specific timelines or dates associated.  A good restaurant broker negotiating a lease up front may not get auto-approve language but hopefully he or she has negotiated for you to have a specific timeline for approval, a fixed cost and at the minimum, language stating that approval may not be unreasonably withheld.

If there was no attempt to predetermine conditions for assignment or approval and/or open ended amounts for lease transfer fees, get ready for a rough ride.  Landlords will take advantage of every opportunity to drag their feet and charge you money.


Secret 3:  Notify the Landlord

Once you understand the conditions for transfer, notify the landlord in writing (email is fine, unless the lease says otherwise), and make sure the request for transfer is confirmed.  That starts the clock on the transfer transaction.  Track every interaction.  Save every email and hold onto all forms of payments provided to him.  Meanwhile, make sure you lease is current (if you’re selling your restaurant), as landlords will typically withhold assignment if you are behind in your lease payments.

The secret is this.  Official notification is never a phone call and rarely an email.  You need to put it in writing and confirm the landlord received it.   


Secret 4:  Use the Landlord Forms

Request that the landlord provide you with their standard documents and forms to be completed prior to transfer.  If they don’t have a standard application document with all of the following built it, be prepared as a restaurant buyer to provide at the minimum:  detailed personal financial statement, consent to credit check and resume or background and experience of the proposed tenant.  Usually the landlord has their own package requirements which can be quite lengthy.

It is not unusual for a landlord to request someone leasing a restaurant to complete a multi-page application, provide copies of bank statements to confirm sources of revenue stated on the financial statement and tax returns for multiple years. They often want a detailed business plan or at least a menu.    If the tenant has a weak financial position, a seller should be prepared to stay on the personal guarantee for the restaurant lease.  If you piecemeal the documents and fail to use their forms, be aware that the landlord will use this as an excuse to delay or deny the restaurant lease transfer. 


Secret 5:  Submit the landlord forms along with the lease assignment fee

All materials should be submitted along with the check for the lease assignment fee.  This is not the time to get cute and limit your responses or try and give only partial information.  If the restaurant lease is to transfer, you must provide the full and complete package including all forms, all signatures (including those of spouses) and tax returns. Do not send without a check.  They won’t process it.  This is like dealing with the government and they will kick back the application if it is not complete.

Then you wait.  And wait. And wait.  And follow up multiple times to find out where you are in the process.  You must be determined, persistent and border on annoying with calls and emails at least once every week.  It is the truly the “squeaky wheel” who gets the landlord to respond on approval. Here's the secret.  Restaurant lease transfers are not a priority. They would much rather draft new leases and earn big commissions on those rather than dealing with a space that already has a tenant paying rent.


Secret 6:   Review the lease assignment

After this, you are typically provided with a draft lease assignment.  At this point, it is important to understand the new obligations and guarantee of the buyers versus any requirement of the person selling the restaurant to remain on the lease.  If you’re being asked to stay on, it’s time to start negotiating.  Here's a secret you need to know.  Everything is negotiable. If you don't ask, on the other hand, you definitely won't get changes.  That’s an entire other blog article.


Secret 7:  Follow the Directions to Execute the Lease

Now is not the time to drop the ball.  You need to find out how many signatures are required and execute the lease assignment.  Typically, a landlord will not allow a docusign version of the lease but wants what is termed ‘wet’ or pen signatures on hard copies.  Generally, a minimum of three copies are required.  Everything goes to the landlord and they will countersign and return originals. They also want money, whether it's the rent payment, an assignment fee or legal fees before they will countersign.  Send it to the landlord without the check and it will not be returned with a signature. 

Now you have the seven secrets to transfer a restaurant lease.  It’s laborious, time consuming and often frustrating. Ultimately, the landlord controls the game and by knowing these secrets, you have a better chance of transferring a restaurant lease.

 

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Topics: Leasing a Restaurant

Five Myths Revealed about Leasing a Restaurant

Posted by Robin Gagnon on Jul 26, 2018 12:09:43 PM

Restaurant buyers and sellers have a common goal when transferring a business.  They need consent of a critical third party – the landlord.  Here are five myths, debunked one by one, on the role of a landlord. Understand that the primary impediment to buying or selling a restaurant, is most frequently, the guy getting a rent check each month. 

We Sell Restaurants is busting the myths and telling the cold, hard truth about leasing a restaurant.  Understand this before attempting to transfer or assign a restaurant lease.  

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Myth #1:  Restaurant Lease Transfer is Easy

Assuming that you can call the landlord and tell him about the new tenant and all will be well is a naïve approach.  That lengthy agreement you signed way back when typically puts all the power in the landlord’s hands. This can include the cost to transfer, the time to transfer and obviously, the agreement to transfer or assign the existing lease. 

Want to hear some horror stories on this topic?  Don’t get us started.  We Sell Restaurants and our expert restaurant brokers can attest to dozens of instances where a landlord has sent a deal crashing to the ground.  Quite frequently, buyers and sellers are resorting to getting a strong attorney involved on the lease transfer process.

Myth #2:  The landlord application process or “package” is straightforward and simple when leasing a restaurant.

Landlords want paper and lots of it.  It’s not uncommon to see a request for a personal financial statement, consent to credit check, multiple years of tax returns, a check for the transfer fee, a business plan and much more.

Are they entitled to all that information?  Unfortunately, the answer is yes. They are performing their own financial due diligence.  They can request the experience basis of anyone applying for space in their center. 

One tip to overcome this issue is to provide everything.  Getting their package right the first time will cut down on the games landlords play in approving or failing to approve a new restaurant lease tenant.  Complete the document in it’s entirely.  Submit any required fees in the form of the lease transfer fee.  Submit it both electronically and in paper.  Track the delivery using a paid service with a receipt so you can verity when it was submitted.  The last thing you want to do is fail to get the restaurant lease approved because you didn’t get the paperwork right.

Myth #3:  Assignment of a Restaurant Lease relieves the current tenant of any Obligations on the Personal Guarantee   

Someone buying or selling a restaurant must fully understand their obligations when it comes to the personal guarantee or ongoing financial requirements of the lease.  A personal guarantee is almost always required by a landlord.  Frequently, they will attempt to retain the seller on the guarantee unless you have negotiated up front, the conditions under which you will be removed.  In most cases, absent any form of an agreement previously reached and outlined in the lease, landlords will always keep the old party on the restaurant lease.

Are there ways to minimize the guarantee?  Yes.  You, your attorney, or your restaurant broker can attempt to minimize the amount of the guarantee a seller remains liable for.  They can attempt to cap the guarantee, put a time frame on it or otherwise keep the liability limited to the new buyer. If the new buyer has superior financials to the seller, this is less of a concern as they will always go after the biggest fish first.  If a seller has the greatest assets, it’s best to negotiate this down first

If the landlord refuses to relieve you of the liability, you can circle back to the buyer for what’s commonly termed a ‘wrap-around’ or indemnification.  This legal agreement can allow a seller to pursue a restaurant buyer personally against some form of secured assets if he should default, leaving the landlord to pursue a seller that’s no longer operating in the space.

Myth #4:  Landlords Have a Duty and Financial Incentive to Transfer a Lease

It’s best to know up from this fact about restaurant leases.  Landlords have absolutely zero incentive to cooperate or assist in a transfer.  The money for a landlord is made by leasing a new restaurant space.  In the case of a transfer, he or she, has a tenant in place.  They are paying rent and they have a personal guarantee.  Ergo, there is absolutely no financial incentive to do anything as it relates to an assignment.  For that reason, landlords drag their feet, refuse to move and overall act like the biggest impediment to ta transfer on a restaurant space for sale.

Myth #5:  Landlords execute restaurant lease transfers in a timely manner.   

The last myth to understand is that a landlord does not move quickly.  The landlord cannot, will not, and typically refuses to move on anything other than their own time frame. This is related to the prior myth about financial incentives.  They want their representatives leasing new restaurant space and their legal teams drafting new leases, not dealing with those already in place.  Without a financial incentive to act, they work in their own time.

That leaves countless restaurant buyers and sellers stranded while they wait on this transaction to occur.  What are the pressure points you can bring to bear?  First, leverage your relationship with the local representative if you have a good one.  Secondly, ask a franchise leasing department to intervene on your behalf.  Lastly, go up the chain of command.  As a restaurant broker, I frequently resort to a google search of the VP or Senior VP for the area to escalate a claim to move.  This sometimes works and in some cases, angers the assignment team so much, they will just slow walk it more. 

If you have been patiently waiting and making professional requests for follow up with no response, it may be time to involve an attorney.  Get them to review the lease and ask the landlord why they are failing to meet the lease language that in most cases states, they “may not unreasonably withhold consent.”

That’s it.  Better to be armed and ready with information than taken advantage of by the landlord.  Need help in getting your restaurant lease transferred?  Reach out to the Restaurant Brokers at We Sell Restaurants and we can help.  If you choose to negotiate on your own, you're now in a better position since we just revealed to you the five biggest myths about leasing a restaurant.

 

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Topics: Leasing a Restaurant

How to Understand Landlord Math when Leasing a Restaurant

Posted by Robin Gagnon on Jul 10, 2018 9:05:01 AM

Leasing a restaurant? There are some terms, in particular, associated with the calculation of leases that you should be aware of. Here’s are the basics of landlord math so you understand numbers on restaurant spaces for lease.

For starters, landlords price space as a price per square foot on an annual basis. That’s the first and most confusing part of a lease. The price per square foot has to be divided by twelve months to get the amount of the rent payment per month.

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Another confusing term is “Base Rent.” What is base rent? It’s the flat amount of rent to be paid every month. In addition to this amount, you will also have to pay, for most spaces, CAM fees, Taxes and Insurance as well.

CAM is an acronym for “Common Area Maintenance.” Common area maintenance refers to expenses for the common good of the shopping center which are distributed among those who benefit on a square footage basis. CAMS can include anything from garbage pickup to landscaping, security and exterior lighting.

It’s very important to understand the amount of CAM charges in the current time period and be aware of their ability to rise over time as they are not fixed amounts like your base rent. It is not uncommon for the monthly rent to increase as much as 30% if you are leasing a restaurant in a high tax area. When taxes to up, your rent goes up. When insurance costs increase, this is passed on to you as a tenant. The landlord can only quote you the current year and this amount, like base rent, is expressed on a cost per square foot.

To add more confusion, the AM fee is calculated on a pro-rata basis or “in proportion” to the square footage. If you are 1200 square feet of a 12,000 square foot shopping center, you are charged 10% of the total CAMS, Taxes and Insurance for the property. You will still be responsible for taxes and insurance on your personal property, your restaurant within the lease space.

Here’s an example of a rent calculation.

  • 1200 square foot restaurant space for lease.
  • Cost: $32.00 per square foot
  • Amount of CAMS, Taxes and Insurance: $7.85 (per square foot)
  • 1200 X 39.85 = $47,820
  • $47,820/12 months = $3985.00 per month

Another lease term you may hear is “Triple Net” which is frequently advertised as an “NNN” lease. In a triple net lease scenario, often associated with a free standing buildings, you will be responsible for all exterior upkeep to the restaurant space for lease. If the driveway needs paving, it’s your responsibility. In addition, you will have to keep insurance in full effect and pay all taxes.

Another important landlord math term to be aware of is TI or Tenant Improvement money. A Tenant Improvement Allowance, commonly referred to as the “TI” allowance, is the amount of money offered by a landlord to the tenant for improvement to the space. The funds are generally offered one of two ways: dollars per square foot of the leased premises or a set dollar amount. These funds are to be used strictly for the improvements to the leased space. They cannot be used for the purchase of equipment or inventory for your restaurant.

Here are of the little known details about TI money you should know. First, the money is not advanced to the restaurant owner. Typically, both the tenant and landlord meet to agree upon the plans or design and then the tenant pays the contractor for the expenses. The landlord later reimburses the tenant based on a full accounting. Sometimes the landlord will add language that if the project is not completed within a certain amount of time than the TI money is not reimbursed. Sometimes he will only repay funds if he chooses the contractor. Make sure you have control over who does the work and what you’re paying.

Secondly, tenant improvement money is expected to supplement the expense for build out. It does not cover the entire cost. The landlord’s contribution is for long term improvements to his property. He wants to see you invest as well and fully expects your contribution to the project at least match his.

This is a word of warning to the would-be tenant. Tenant improvement money, or TI, is not free money. You will be paying this back in the rent amount at some ridiculous rate of interest that’s never clearly calculated for you. It’s all part of the landlord’s top secret formula for arriving at a square footage price.

It may seem like a huge amount of money when a landlord is offering up $20 a square foot for a 2000 square foot space or $40,000 of “free” money. However, a typical build out of a restaurant will be much more than that. Average expenses range from $15,000 for a grease trap (in ground 1500 gallon) to $1000.00 per linear foot for a hood (average 12-14 foot or $12,000 to $15,000). Installation of mechanical, electrical and plumbing can easily run another $40,000 before you build any walls, add flooring, put in a bar or purchase any equipment. That’s why a “second generation” space or even the purchase of an asset sale is often less expensive and less work.

Approach leasing a restaurant the same way you would buying a restaurant. Go in with your eyes wide open, in full possession of as much knowledge as possible and make sure you know the numbers.

Do you have questions about leasing a restaurant or restaurant math? Reach out to We Sell Restaurants for more help and information on this topic.  

Topics: Leasing a Restaurant

5 Lies about Leasing a Restaurant Everyone Thinks Are True

Posted by Robin Gagnon on May 25, 2018 5:29:48 AM

It’s every man for himself when you are leasing a restaurant and here’s why. The landlord is out for himself and no one else. Here are five things you don’t want to learn the hard way – the five lies about leasing a restaurant used by landlords.

It’s the time of year when all the landlords in the world are gathered in Las Vegas at the ICSC (International Council of Shopping Centers) convention. They are drinking by night and plotting by day on ways to bring down you, the little guy who’s leasing a restaurant. Here are the top five lies they will tell you when leasing the restaurant.

I’m the landlord and I’m here to help is lie number one.

President Ronald Reagan referred to these words, “I’m from the government and I’m here to help” as “the most terrifying words in the English language.” He might say the same thing about landlords today. Any landlord that says, “I’m here to help…” is practicing lie number one. Here are some examples you should be aware of when leasing a restaurant.

“I’m the landlord and I’m here to help you with tenant improvement money. I’ll invest in your business along with you.” Is this true? No. The landlord is pricing that tenant improvement money into your lease rate and being paid back a very healthy (or should we say unhealthy and obscene?) amount.

“I’m the landlord and I’m here to help you with lease rates. I want you to succeed.” Is this true? No. The landlord is looking at only one person in the transaction to help. He wants to improve his checkbook, his bottom line and his earnings. He has no interest in helping you succeed. Consider this. If you fail, he still gets paid. If you fail, he gets the property back, fully improved AND your equipment (in most cases).

The Personal Guarantee is non-negotiable is lie number two.

Everything in life is negotiable. Just because the landlord says he wants a blanket guarantee over the entire term of the lease does not make it true. You can negotiate for a limited guarantee – meaning, limited to just two years or just the first term or just $50,000 or just one year of lease payments or whatever you want. Always propose something other than a full and unconditional guarantee of t

Lies about leasing a restaurant

he lease for the full term. Do not believe this cannot be negotiated in some form or fashion, particularly when you have good credit, a strong concept and money in the bank. The minute you sign, you lose all leverage.

I will not “unreasonably withhold” consent to transfer is lie number three when leasing a restaurant.

As a restaurant broker interacting with landlords every single day on lease assignments, I can assure you this is the biggest whopper of them all. Do not rely on this language when leasing a restaurant (even though it has been litigated and has precedent in legal cases) as a “catch-all” to believe your lease transfer will go easily.

Insist on specific, measurable steps with a timeline in the event you ever transfer the store when leasing a restaurant. Set up clauses that say a new franchisee of the same concept with a net worth of $500,000 shall be accepted upon notice and such notice shall constitute a 30 day window for landlord approval. Should he or she not object within 30 days, then the assumption is granted.

Work with an attorney on the language (disclaimer: I’m not an attorney and am not offering legal advice). My business advice as a restaurant broker is for you to be as precise as possible around costs to transfer, timeline to transfer and any net worth requirement. What you don’t want is for a landlord to be able to delay a transfer, charge whatever he wants and arbitrarily designate what’s acceptable net worth requirements.

Refuse to sign anything that is vague. Require the business terms to conform to language like this.

  • Costs
    • “Reasonable Attorney fees” – NO – what’s reasonable to the landlord is not reasonable to you.
    • Lease transfer fee not to exceed $1000 – YES – defined and specific.
  • Timeline
    • Shall not unreasonably withhold – NO
    • Shall be approved within 30 days - YES
  • Net Worth number
    • Same net worth as current tenant -- NO, too subjective, how do you prove what yours was and what his will be?
    • Net worth of $500,000 or more – YES.

We Sell Restaurants is working with landlords daily that are trying to charge immense fees, drag their feet and then will not approve a franchise candidate who has already been through an approval process for both lending and the franchise brand without any issues. Don't fall for the landlord's lies when leasing a restaurant.

The Property Manager and Leasing Agent are there to help is lie number four.

If you call the sign on the door when leasing a restaurant, that number goes to the landlord’s leasing agent. You are under no obligation to work directly with them but they will not disclose this to you or ask if you wan to bring your own representation to the table.  After you open the business, it’s common to develop a close working relationship with the property manager who is either onsite or responsive when you have an issue. Often the landlord’s representative will even tell you that as soon as the lease assigned, the Property Manager is your “go to” person. Remember, they do not work for you. They work for the landlord.

This lie is very similar to lie number one. When either of these parties agree to “help,” it is the landlord who receives the benefit. The leasing agent is paid a commission based on the size of the lease he negotiates. The bigger the number, the more he earns.

When it comes time to transfer, the property manager onsite, your good buddy, has absolutely nothing to do with the deal. It’s a common fallacy to equate this person with the landlord. He or she does not have decision making authority. Typically the property manager cannot even receive documents related to a lease transfer. Don’t fall into a trap of thinking they are you ally and can get your assignment done or will take your side in any form of a landlord dispute no matter what they say.

Remember, when leasing a restaurant, the Property Manager and Leasing Agent’s loyalty (and paycheck) reside with the landlord. We always advise you to use the services (usually at no charge to you) of a qualified restaurant broker to represent you with negotiations on leasing a restaurant.

We’re exclusively working with you is lie number five.

A landlord is like a girlfriend (or boyfriend) that cheats. Don’t ever trust them to be exclusive. You may have thousands of dollars in legal fees invested in leasing a restaurant and the final draft in hand but if the landlord gets a better offer, he’ll drop you like a hot potato. Leasing a restaurant starts with an LOI or letter of intent but is not final until you have a lease signed by both you, the tenant and the landlord. Letters of intent are not binding. Most do not have a ‘no-shop’ clause, allowing the landlord to continue to shop this with anyone and everyone until it’s inked.

It’s not uncommon to see landlords take your letter of use it to leverage someone else into leasing a restaurant despite that fact that you’re putting time and money, drawing plans, and otherwise investing in this opportunity.

We have seen landlords accept signed leases from tenants and then decide to go with someone else if a big brand throws enough money their way. Don’t let them fool you into thinking you’re the only game in town. Until it’s inked, it isn’t real. If it isn’t stated in the lease, it isn’t real. Don’t leave any points out of that lease that were discussed. Never agree that such and such was discussed and when the time comes, the landlord will handle it.

Above all, by reading this article, please understand that when it comes to landlords, you can never underestimate them. Use what you learned to get the best deal possible for leasing a restaurant. Cover yourself going in and have a secured strategy for getting out. If you need help, contact one of our restaurant brokers to help you negotiate a deal. Don’t get caught by one of these five lies about leasing a restaurant landlords often use.

Blog Byline Robin

Topics: Leasing a Restaurant

Restaurants for Lease are a Great Option for Many Buyers, and The Restaurant Brokers Have the Most Restaurants for Lease Listings.

Posted by Robin Gagnon on Oct 23, 2017 10:26:30 AM

 

Restaurant space for lease.png

Restaurants for lease have some advantages as far as not having to put all of your capital up front to purchase the business outright or for a hefty down payment on a loan. This money that gets to remain in your hand can be used to upgrade the décor in the dining room and for marketing purposes. If you are on the hunt for restaurants for lease, to keep the most money in your pocket, your best bet is to purchase an existing location that is up to code and already equipped with all or most of the equipment and appliances you will require.

Restaurants for lease are a great option for someone who has never owned a business before, or someone who is not well-known in the area. Someone buying an eatery who is popular within the community will have an easier time bringing patrons to their business and will therefore generate more income as opposed to someone who is almost unknown within the area. The lesser-known individual will have to shell out significantly more money on marketing and advertising expenses to bring business in.

Many restaurants for lease spaces are second generation – meaning before the space was vacated it was a dining establishment. This mean that you won’t have the extra expense of installing kitchen equipment, and in many cases the restaurants for lease space will include the tables and chairs for your use, if you wish to use them. If the restaurants for lease you are looking at were not previously dining establishments, you need to make 100 percent sure that the space you are interested in can be made into one. It is absolutely crucial to bring in a code enforcement officer, health inspector, and a fire marshal so that they can tell you everything that will need to be added or updated. The next step is to discuss with your potential landlord how much, if any, of the repairs and updates they will cover.

The Restaurant Brokers have the most restaurants for lease listings, and we can help you find the perfect spaces all across the United States. Is the mountain lifestyle what you love? We have the perfect location for you! This is one of our restaurants for lease that comes with a view – the Great Smoky Mountains specifically! This space is only 50 miles outside of Atlanta and is a free-standing building with nearly 10,000 square feet of space. Not only do you get a fantastic dining space, but the additional space could be used for a second business! Some ideas would be a health food market, art gallery, or even a space to hold events! Don’t miss checking out this listing here.

Are you more of a beach person? No problem. We have plenty of restaurants for lease listings on the coast. Take for example this listing in Broward County, Florida that used to be an iconic barbecue joint. All of the equipment is there for you to turn this space into the business of your dreams, and the landlord recently replaced the floods and updated the facility to be up to code. The landlord is ready for you to bring your own concept! Check this one out here.

These are just two of the restaurants for lease the Restaurant Brokers have to offer. Why choose a We Sell Restaurants listing? Our Certified Restaurant Brokers have the knowledge and tools necessary to make your transition from browsing restaurants for lease listings into lessee in record time. Take a moment to read our FREE Leasing Guidebook that includes indespensible information for someone considering restaurants for lease. Visit our website and check out all of the restaurants for lease we have to offer, and get ready to get into your business!

Topics: Leasing a Restaurant

University Restaurant Space for Lease in Atlanta

Posted by Eric Gagnon on Sep 2, 2014 1:32:26 PM

4277_mainpic-1Rent this restaurant space for lease in a location surrounded by thousands of potential customers.  Located in downtown Atlanta, this restaurant space for lease, offered by the restaurant brokers, is the perfect new locale for your business.  The monthly rent is $4,995 for 2,900 square feet which includes a 600 square foot mezzanine open to the downstairs.  Public transportation provided by the Metro Atlanta Rapid Transit Authority (MARTA) offers plenty of transportation options.  Patrons can easily access the district by either the MARTA rail stations and/or the city bus routes.


This is currently a closed location however it has a hood, grease trap, flat top, fryers, refrigeration and some other remaining equipment.  The front of house includes everything down to the chairs and  tables so it could be turned over to a new concept quickly.  Your new business will be located directly on a university campus with access to more than 32,000 students and 3500 faculty members.   Landlord is willing to do both Tenant Improvement Money and free rent for a period of time for the right tenant to offset an upfront charge of $25,000.  The landlord is willing to make a sweet deal but he wants experienced operators or franchises for this one of a kind location.  His preference for the concept includes a breakfast and lunch operation.  Come a break a few eggs on this college campus today with the many concepts that are right for this daypart.    
 
The area is thriving and allows for a terrific opportunity.  This restaurant space for lease is surrounded by major retailers, high-end businesses, and outstanding foot traffic.  This area is the central business sector for Atlanta and is the largest of the city’s districts.  This Atlanta neighborhood hubs many corporate headquarters as well as city, county, state, and federal offices. 
 
This restaurant space for lease is within a region which measures approximately four square miles and has the median income of $87,000.  Due to the exponential growth of the district, the downtown area has undergone a significant transformation.  Renovation of historic buildings and construction of new housing/condos has welcomed the arrival of new businesses and residents alike.
 
This restaurant space for lease allows for endless inspiration and numerous concepts.  A spacious 2,900 square foot floor plan, the site can effortlessly mold to concepts such as a coffee shop, doughnut, fast food franchise, or even a yogurt shop.  Your options are limitless.  Quick-casual concepts have become extremely popular and allow the customers convenience and speed of service.  The rise of the “foodies” has also permitted significant growth for fine dining joined with casual dining prices.
 
Make an offer today on this restaurant space for lease and contact Certified Restaurant Broker Eric Gagnon at 404-800-6000.

Topics: Leasing 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