Is the Landlord Your Partner in Selling Your Restaurant?

If you answered, no, think again.  Not only is the landlord a critical partner in the transfer of your business, he or she is the number one reason why deals to sell your restaurant fail. If you are in the market to sell your restaurant, consider the role the landlord could play in your plans. 

Many landlords have the opportunity to either block, fail to approve or otherwise put the brakes on a deal to sell your restaurant that is otherwise looking like a paycheck for you. It’s always a good idea to pull out that lease and take a close look before listing or selling.  In fact, a good restaurant broker will insist on seeing the lease and any transfer language as well as question you about your relationship before putting your restaurant on the market.      

If you’re a good tenant that has always paid on time, this may actually work AGAINST you in a lease transfer.  We have had landlords tell the restaurant brokers they much prefer the tenant they are familiar with versus the untested one they don’t know. Check out these reasons a landlord might deny a buyer the restaurant space for lease.

Here are just a few examples the restaurant brokers have personally observed in recent transactions that had the ability to destroy the chance for a business owner to sell their restaurant.

1)      Unreasonable transfer costs. Some landlords are sneaking language into leases that require they be paid ten or fifteen percent of the sales price to transfer a lease.  Unsuspecting tenants sign the lease without noticing the language and respond to the landlord request for a copy of the sales contract only to learn the landlord intends to enrich themselves unreasonably in the sale.  Savvy restaurant brokers always strike this language before a lease is issued but make sure you check yours BEFORE finalizing a sales price.  You may need to increase the price in order to cover a seriously unreasonable cost where the landlord essentially gets a commission for doing absolutely nothing. 

2)      Failure to Approve.  Landlords are notorious for dragging their feet on approving deals.  They will pass you from one person to another without ever giving a reason why the new tenant that is just as credit qualified and experienced as you is not being approved.  In one of our most recent transactions, a despicable landlord has been dragging his feet for more than six months.  The local representatives have used every excuse in the book ranging from “the building was sold and thus we’re just running behind” to “it’s all in Sally’s court and we’re waiting on her to process it.”  The bottom line is that your lease should have a reasonable amount of time for a landlord to approve a new tenant or you may be waiting in limbo to sell your restaurant.  Time is your enemy in selling your restaurant so every day a buyer waits, he or she gets colder by the moment.  They have time to reconsider, get more opinions and just generally change their mind.  By dragging his or her feet, the landlord is consciously working to kill the deal.

3)     Designating a Tenant “In Default.”  One recent landlord, after five years with the same tenant and the same lease language, decided upon request for transfer to put the tenant “in default” for an upgrade that was required under the lease four years earlier.  After choosing not to enforce the terms of their own lease for four full years, they decided that instead of approving a new tenant, they would just kick the existing tenant out by using a landlord trick of placing the seller in default.  In this example, the property was sold and the prior landlord had waived the right to remodel but when the lease transferred to new ownership, this unscrupulous landlord was able to enforce it against the tenant. 

Sellers must make sure that any conversations with the landlord on these issues are carefully documented.  If you fail to do an upgrade to the center and have discussed it with the property manager, at a minimum send a letter or email message to the landlord saying, “Mr. Landlord.  As discussed with your representative on this day and time, the interior of the restaurant is in great condition and you have waived my requirement for an upgrade as indicated in the lease.  Please reply by email or mail so we both have this information for our records.”  Then HOLD ONTO this proof until the end of time. 

From the tone of this blog posting, it’s pretty clear that not only is the landlord, unfortunately, your partner in selling the restaurant, he’s often an unfriendly one.  Do not take anything for granted and make sure you are protected.  The restaurant brokers have written an entire chapter on this topic in our book Appetite for Acquisition.  For more fun information on landlords, read the chapter titled “The Landlord is Not Your Friend.”  Our book is available online from Amazon.com or directly from our publisher.

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Read also, 4 Must-Know Landlord "Gotcha's" When Leasing a Restaurant.