Before you negotiate a restaurant business lease agreement there are a few things you must consider. The first year a restaurant is open is the most critical year of all. The first 12 months you’re open may determine how long you stay open.
So, it is very important to negotiate the lowest rent possible for your restaurant business lease agreement. Your landlord may already know how much he needs and wants as his rent amount. However, they also want you to be successful and will sometimes be willing to work with you. While negotiating the price, of your restaurant business lease agreement, don’t be so pushy that you give your landlord second thoughts about you to the point that he decides not to work with you.
You may find your landlord would be willing to let you operate at a lower rate the first year, if you allow him to raise the rent the second year of your restaurant business lease agreement. This may be very beneficial to you during the first critical year.
Try very hard to get a short-term lease agreement with an option to extend. For example, you could negotiate a two-year lease agreement with two, five-year options with the same terms. This means you will guarantee the rent for two years and if things don’t work out you are free to leave after two years. If things do work out, you will have the option to stay for ten more years with all the same terms as the first two years.
By using these two methods, you have lowered your risk. Naturally, landlords love long-term lease agreements, but many are very flexible. If you’re dealing with a company-owned piece of property, or property that is owned by a group of investors, you may find negotiations won’t go your way. If so, you must decide if the location is really worth what they are asking. Is it worth it to you?
Rent for a restaurant should be 5% of your net sales or less. Let’s say your projected monthly net sales are to be $40,000 per month, and the landlord wants $2500 per month as rent. Simply divide 2,500 by 40,000 and you will find that your monthly rent will be 6.25% of your sales. That is 1.25% higher than I recommend. That 1.25% of $40,000 represents $500 out of your pocket each and every month. That may not sound like a lot to you; however, you cannot give away very many five-hundred-dollar bills and expect to survive. Maybe you’ll be unlucky and your sales will be lower than projected. If so, you will be in big trouble.
The decisions you make during the negotiations, of your restaurant business lease agreement, may make or break your future in the restaurant business. The one exception which would make the $2,500 rent, with $40,000 net sales look attractive would be if equipment were included with the building. Then it could be justified because your initial investment on equipment would be lower.
Be smart and be careful. Always have an attorney look over your restaurant business lease agreement before signing unless you have knowledge of leases. Before leasing a building, you should try to get some guarantee on the roof, heat and air conditioning systems, and the plumbing and electrical. Also, please make sure the parking lot is in good shape. These are not things you need to deal with after you’re open.
Many landlords will only lease a building “as is”. This means no guarantees. Some will guarantee that all these things are in good working order when you sign your restaurant business lease agreement.
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