How To Negotiate A Restaurant Lease

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Negotiate A Restaurant Lease

Finding available commercial space in New York to lease for a foodservice business can be challenging for numerous reasons. Obstacles for a foodservice tenant can include the lack of available commercial space that is properly vented for your business (most commercial properties were built years ago when proper venting was not required), a four to eight month deposit expected by the landlord, and/or a “good guy guarantee” where you are expected to pay up to one year’s rent to your landlord if you default or close your restaurant (even though the landlord can then turn around and re-rent your space immediately).

Even if a foodservice tenant can find appropriate commercial space, he/she will often find that to negotiate a restaurant lease or lease renewal against an experienced agent or landlord is difficult. While a foodservice business owner thinks of marketing, managing and menus, savvy real estate agents and brokers are specialized sales people. Their job is to sell foodservice business tenants on leasing their location at the highest possible rental rate.

Negotiate A Restaurant LeaseAs we explain in our book, Negotiating Commercial Leases & Renewals FOR DUMMIES, and explain at our repeated presentations at the International Restaurant & Foodservice Show of New York each year, there is much to remember whether you are leasing a new location for the first time or negotiating a lease renewal for your restaurant. Here are some tips:

Negotiate to Win

All too frequently, tenants enter into lease negotiations unprepared and don`t even try winning the negotiations. If you are not even negotiating to win, you won`t. With big commissions at stake, you can be sure the landlord`s agent, on the other hand, is negotiating fiercely to win. Foodservice tenants should remember that it is okay to negotiate assertively.

Be Prepared to Walk Away

Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. A good foodservice business in a poor location will become a poor business.

Ask the Right Questions

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Gathering information about what other tenants are paying for rent or what incentives they received will position you to get a better deal. Ask the right questions. Consider that your landlord and his agent know what every other tenant in the property is paying in rent, so you must do your homework too.

Brokers… Friend or Foe?

Agents and brokers typically work for the landlord who is paying their commission. It is not normally the agent`s role to get the foodservice business tenant the best deal – it is their job to get the landlord the highest rent, the biggest deposit, etc. Often, the higher the rent you pay, the more commission the agent earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent`s listing. Your tenancy is more desirable to the listing agent if he can avoid commission-splitting with other agents.

Never Accept the First Offer

Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent`s first offer. In the real estate industry, most things are negotiable and the landlord fully expects you to counter-offer.

Ask for More Than You Want

If you want three months free rent, then ask for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer and negotiate with you as well. Don`t be afraid of hearing ‘no’ from the landlord – counter-offers are all part of the game.

Negotiate the Deposit

Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable and, more so than anything else, often serve to compensate the landlord for the real estate commissions he will be paying out to the agent(s). If you are negotiating a lease renewal and your landlord is already holding a deposit of yours, negotiate to get that deposit back. The Lease Coach is frequently successful with negotiating to have the tenant’s deposit returned.

Measure Your Space

Foodservice business tenants often pay for phantom space. Most foodservice business tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says.

Negotiate, Negotiate

The leasing process is just that – a process, not an event. The more time you have to put the deal together and make counter-offers, the better the chance you have of getting what you really want. Too often, foodservice business tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate a restaurant lease in stages over time.

Educate Yourself and Get Help

Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a webinar will make a difference. And, don`t forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can`t afford to gamble. In leasing, foodservice business tenants don`t get what they deserve, they get what they negotiate.

Remember, foodservice business tenants may go through the leasing process once or twice in their entire lifetime – yet they have to negotiate against seasoned professionals who negotiate a restaurant lease every day for a living.

Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit TheLeaseCoach.com. For a free copy of their CD, “Leasing Do’s & Don’ts for Restaurant Tenants”, please e-mail your request to JeffGrandfield@TheLeaseCoach.com.