Starting a Restaurant Begins with a Lease
If you have the entrepreneurial bug and decided to start your own restaurant, you have found out that it begins with a location. You know the success of your operation may depend on that perfect spot for your brainchild. Don’t get blinded by ambition and magnificent food dreams and do something crazy like signing a lease without negotiation of the terms. Your perfect location could turn into the perfect nightmare.
Most commercial leases are “triple-net”; which means you pay all taxes, insurance and general common operating costs to the overall facility. Landlords will try to convince you that all the leases are “standard” and you should take some comfort in that. Not so fast! No contract is standard, including leases. What may work for a dress shop, cannot work for a restaurant.
As a multi-concept restaurant owner and business developer that has signed dozens of leases over the last forty years, I have never found a lease that wasn’t one sided in its composition for the landlord’s benefit. Never have I signed a lease that didn’t need considerable negotiation and re-construction to make it a fair document; one that reflected the needs of my operation.
Here are a few tips before making any commitments;
- Get an attorney that is a real estate expert. Don’t use your brother’s divorce lawyer because he did a good job for him. That is like using a foot doctor for brain surgery. Even with an attorney you must understand what every clause of a lease means and the long term impact on your business.
- Never accept the explanation that anything is “standard” and can’t be changed. Any clause can be changed.
- Common area maintenance charges need spelled out and your proportion must be stated in a specific fixed percentage.
- Do not rely on the landlord’s verbal assurance that heating and cooling are sufficient for your needs. Restaurant atmosphere is more demanding that other types of businesses. You must have a written guarantee that you will be able to keep your guests comfortable. Adding air conditioning is expensive and frequently needed for existing spaces never utilized as a restaurant.
- Watch any clause that deals with the landlord’s liability and your ability to enforce the terms. Many leases are written so lopsided that you have to pay the landlord’s attorney fees if you have to sue him for anything! There should be a “prevailing party” clause on any litigation.
- Never sign a lease that allows the landlord to become your “attorney-in-fact” (power of attorney) to sign legal documents if you refuse to sign a document the landlord needs to sell the property.
- Never sign a lease that allows the landlord to move you to another location – even if they have to pay the costs.
- Typically the landlord will want a personal guaranty on the lease. That’s OK if the landlord is also willing to offer some personal assurance that they will keep their side of the bargain.
- Finally, don’t be convinced that the landlord is a “nice guy” and you won’t have any problems with him. What if he sells a year from now? What if he dies? Will the next landlord be so nice? Look to the future and take emotions out of the contract.
While your attorney is a valuable asset to the lease agreement, only you know what your specific needs are. Get those in writing after explain your problematic conditions to the counsel. Be open and honest. Consider growth. Perhaps you want a right of refusal on the space on either side of you for future expansion or the ability to add on the building. Make sure parking is addressed and all the rules of the complex match your operations.
Opening a restaurant is a life’s dream for many people. That dream can be stolen away by a document that can hinder your ability to survive a difficult industry.
Larry Edger, Author
The Restaurant Ebook
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