Starting your own restaurant isn’t a piece of cake regarding both money and time spent in achieving your goal. Although some folks with deep pockets decide to buy the restaurant, if you don’t have enough funding, renting a restaurant might seem like a better idea.
If you rent, you won’t have to worry about paying a large mortgage to the bank or building maintenance expenses your landlord will have to pay instead of you.
When you’re picking a restaurant property for lease there are a bunch of things that can go sideways real fast if you aren’t prepared.
That’s why we prepared this leasing a restaurant checklist that will help you through this process.
Finding opportunities for renting a restaurant
There are a few ways you can look for your restaurant. The simplest one is to try online on internet sites.
You can also check the commercial real estate brokers, but it’s likely they’ll charge you with a fee.
If you have time, you can drive around and look for lease signs or ask around. Maybe your family and friends know someone that’s in the renting/leasing business.
Maybe your family and friends know someone that’s in the renting/leasing business.
Before you negotiate with the landlord
Let’s say you spent some time and finally found the place that seems right for your restaurant.
You won’t go calling the landlord right away and set up a meeting. You want to come prepared and there are a bunch of things to do before renting a restaurant.
Check the locations previous tenants if you can (and if they exist). Find out (if you can) how much they were paying and what is the landlord like.
Is this even the person you want to be doing business with. If the place was vacant, find out how long. The longer the better.
You can negotiate the lower price later highlighting the fact that it’s better to get any money for space rather than it staying empty.
Come with a business plan and all the information about a restaurant you’re opening. Target customer groups, menus, pricing etc.
If you’re competing with somebody else for the location it’s going to help make you seem like a safer bet for renting a restaurant than the competition.
Meeting with a landlord
All the time consumed so far led you to this so pay attention. When negotiating for renting a restaurant you have to be very clear about everything, and I mean everything.
If you don’t have it black and white on a piece of paper it may as well be hearsay. Some of the things to look after are:
- How much is the additional rent charge?
- How much parking is provided?
- Does it have the necessary requirements of a licensed eating establishment?
- What kind of garbage pick up do they have
- How many bathrooms does a facility contain
- Is there any kind of ventilation system
When you make the initial inquiries about the location and convince yourself everything seems right you’re probably wondering how much does it cost to rent a restaurant like this.
Well, when you calculate the seating capacity of the space and your monthly sales, the cost of the rent shouldn’t exceed 6-10% of the gross sales. Renting a restaurant cost is just one of the major expenses, for a full list click here.
If the number is too low maybe the place is too expensive for you.
Once that’s settled you can move forward for making initial offer and writing the letter of intent.
The Letter of Intent highlights the major deal points to be included in the Lease Agreement. You can find more about the LOI content here.
Since there will be a lot of legal business here it wouldn’t hurt to hire a real estate attorney who certainly understands the process and all the things that can go wrong.
It may seem like an unnecessary expense, but it is going to guarantee that you don’t get crossed by your landlord in any way.
The lease agreement
Once you both agreed to the terms of a lease that you outlined in the LOI you can move to finalizing the agreement and signing the lease.
Keep in mind that the whole agreement contains much more information than LOI and once you signed it you have to keep your end of the deal under the legal commitment.
That’s why you shouldn’t take long lease period when you start the restaurant because you never know what might go wrong.
You can end up getting sued for the rest of the rent if you restaurant by any chance fails and you have to close it.
If you’re having any doubts about the success of your enterprise renting a restaurant with no long-term requirements is the better fit for you. You just need to find a landlord that’s willing to settle for that.
On another matter, chances are that the place you’re leasing/renting won’t be in the best condition and will require renovation.
It wouldn’t seem fair that you have to renovate a place that isn’t yours and won’t be in your ownership later on.
That’s why it usually agreed that the tenant doesn’t pay the rent for the first couple of months until the renovation money he invested matches the rent owed to the landlord.
The lease agreement also contains other info such as options to extend the lease for a longer period of time after the initial period expires.
Also the fact that the tenant doesn’t need to pay the rent in the period between accepting the keys of the space and officially opening (sometimes it takes months).