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Negotiating a good restaurant lease or lease renewal can be a challenge.
While restaurateurs are well-versed in team management, menu-making, customer service, and marketing, they’re not always knowledgeable about real estate. Restaurant owners likely go through the leasing process once or twice during the course of their careers, yet they find themselves up against seasoned professionals who negotiate leases every day, whose goal is to get tenants in at the highest possible rental rate.
So how can you lock in reasonable rates when you're leasing a restaurant space? Here are a few insider tips from Dale Willerton and Jeff Grandfield of The Lease Coach.
How much does it cost to rent a restaurant space?
In short, it varies. According to a survey of 496 restaurants across the country conducted by RestaurantOwner.com, the median cost of monthly rent is $5000. It can be much, much more in major cities like New York, San Francisco, and Miami.
For pop-ups or short termers, renting out a restaurant can cost $100-500 per hour, with that figure also ballooning substantially depending on location. For example, an upscale sake tasting room for rent in San Francisco goes for $2,000 per hour for at least two hours.
How to Rent a Restaurant Space
Get your business plan together, including your budget
A thorough restaurant business plan is step one for any new venture, and the section on location is one of the most important. It's where you show potential investors that you've researched where you want to operate, and that you know your location is just waiting for a restaurant business concept like yours.
Make location analysis and the related hard realities of your budget an integral part of your restaurant business plan writing process, so you know what kind of space you can afford to rent (or even buy).
Listen in on a real estate ownership webinar. Read up on the leasing laws in your area. Watch some videos to help with your negotiating skills. Connect with other restaurant owners in your area - it will all make a difference. With hundreds of thousands of dollars in rent at stake, as well as personal guarantees and other risks, you can’t afford to gamble. When it comes to leasing, restaurant tenants don’t get what they deserve, they get what they negotiate.
Ensure you have the start-up funds
Take a look at that business plan again. Does it say anything about how much runway you have to make this thing happen? If not, go back and crunch some numbers to make sure you actually have the start-up funds needed to even rent a restaurant space. And if, like many restaurant operators, you don't have all the necessary cash waiting in the bank, start looking into your restaurant financing options and pursue whichever path makes most sense for your situation.
Whether you’re opening a new restaurant, expanding your concept, or renovating within your existing four-walls, you’re going to need capital to make it all happen.
Find a restaurant space
Check online, and also look for print ads, for spaces in neighborhoods you want to be in. Tap your network of friends and colleagues to see if they know of any great spots. Walk or drive around preferred areas. The right spot is out there — you just have to know where to look and who to talk to.
Go see the space and measure it
Restaurant tenants often pay for phantom space, which means there’s a disparity between what the lease agreement charges for, and the space that actually exists. Do your due diligence and measure the space when you go see it.
Check out these restaurant floor plan examples and learn all about how layout contributes to making a restaurant as efficient and profitable as possible.
Don’t broadcast buying signals
Don’t let your excitement diminish your ability to negotiate. For instance, while on your visit, avoid phrases like:
"When I move in, I would get the carpet replaced."
"This large room could easily accommodate bigger groups or private functions."
These are called buying signals and they weaken your bargaining position. Don’t let your words work against you.
Talk to other tenants
Current tenants can provide the best inside information. Introduce yourself as a prospective tenant, and ask for their honest opinion of the landlord. Inquire about the level of property maintenance, the rental rates, their future intentions to stay another leasing term, and so on. Use this information wisely in your negotiations.
Determine your bargaining strength
Several factors will determine your bargaining strength with respect to negotiating a new restaurant lease or a lease renewal. These include the overall vacancy rate of the building, recent tenant turnover, and your restaurant’s size in relation to the entire property.
Additionally, your ownership status is important (are you opening a restaurant independently or joining a franchise?) as well as your business and credit history.
Every rental application is different, but UpCounsel.com suggests that you be prepared to submit the application and have the following items on hand:
- The name of the restaurant
- What the space will be used for
- Past landlord and rental information
- Information about the owner
- Business’s banking information
- Credit references
- Permission to run credit check
Consider not accepting the first offer
A first offer can sometimes be an inflated number, so landlords or leasing agents have the wiggle room to give in slightly to negotiations. The majority of agents build in room to maneuver and expect you to counter-offer.
Negotiate to win and be prepared to walk away
All too frequently, restaurant tenants don’t even try to negotiate. They set their sights on striking a fair deal and then call it a day.
Don’t adopt the “good enough” philosophy. If you’re not negotiating to win, you won’t. If you want three months free rent, then ask for five months. Be prepared for the landlord to counter offer and negotiate. Don't be afraid of hearing "no" from the landlord – counter-offers are all part of the game.
With big commissions at stake, you can be sure the landlord’s agent will negotiate fiercely. Restaurant tenants should remember that it’s okay to be assertive, too. It’s your business after all. No one will fight for it if you don’t.
Set aside your emotions and make objective decisions. Developing a mindset that includes walking away from a deal that doesn’t suit your needs will save you a lot of time, money, and aggravation. A good restaurant business in a poor location will become a poor business.
The more time you have to research your best deal and make counter offers, the better the chance you have of getting what you really want. Too often, restaurant tenants mistakenly try to hammer out the deal in a two or three hour session. It’s more beneficial to negotiate in stages over time.
Have Your Lease Documents Professionally Reviewed
Make sure the lease contains everything you’ve agreed upon. Is it a month-to-month or year-to-year term? What renovations can you make to the space? Look at every line of the lease, then have a lawyer or someone else fluent in contract law review it too. These people can ensure you’re getting all you pay for, so your restaurant can be it all it can be.
Location is just one element of your restaurant, but it’s critical. Due diligence is needed to make sure you rent a space that can grow with your business.