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How to Negotiate Your Restaurant Lease

Business.com / Starting a Business / Last Modified: April 27, 2017

One of your biggest expenses as a restaurateur is the space you lease.

One of your biggest expenses as a restaurateur is the space you lease. As such, you need to take some precautions to ensure you get the best deal. Aside from the obvious (i.e., having a lawyer review the contract before you sign it), there are certain steps you can take to negotiate a better deal than the one proposed by the landlord.

Do your research

You can easily find out what a building's value is with a quick search online. Property value encompasses more factors than just square footage. You also want to consider the perks and negatives with the particular location, such as whether it's in disrepair or its age.

Check the crime rate in the area. Even if it's not a deal breaker for you, a high crime rate can help you whittle down a high asking price for the rent.

Spend some time with the neighbors. You can learn a lot about how other businesses in the area are faring, what the foot traffic is like, the customer demographics, etc., by chatting with other business owners. You might be able to find out how much your neighbors are paying for rent, and this information can go a long way in negotiations.

Find a broker

The commercial real estate broker is the individual who will conduct negotiations between you and the landlord. A broker is necessary when you're ready to shop for available properties. Be sure you find the right one, though – if the broker you choose also represents your landlord, your interests may not be theirs, because the broker's commission is paid by the landlord.

A letter of intent spells out what you're willing to pay monthly or annually and the terms of the lease. This is where negotiations begin. Be sure you know who is responsible for repairs – even if a landlord is willing to send a maintenance crew to fix the issue, you may end up footing the bill.

Negotiate remodeling costs and operating expenses

If you need to make changes to the space to get it up to code, you need to clearly lay out your plans in the lease agreement. It's likely that renovations will improve the property and its value, so you may be able to negotiate to have some rent payments waived until you're ready to open the doors.

You also need to ensure that operating expenses are clearly spelled out in the contract. It's important to work out who's responsible for paying property taxes, building insurance and other fees so you can include it in your business plan.

Be flexible

You can include caveats in your rental agreement that celebrate your success. Your landlord may agree to a low rent payment if you include a clause that requires you to pay higher percentage rent if your sales take off. A good broker can negotiate a deal that ensures you're financially in the black long before the clause kicks into effect. 

Include clauses and other options

Negotiate as many options as you can to protect yourself and your business. You can work out the details of subleasing and kick-out clauses, in case you need to get out and lease the space to another business, or terminate the lease entirely. An exclusivity clause can protect your business by preventing the landlord from leasing out any other nearby properties to your direct competition.

Don't accept the first offer, and don't expect to sign anything after the first round of negotiations. Negotiating and obtaining a restaurant lease that is fair to you can be a long, involved process. You're ready to sign on the dotted line when you and your broker or lawyer have combed through every line of the contract, and you're happy with the terms.

Image from Michael Moloney/Shutterstock

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