Things You Need To Know Before Signing Your Restaurant Lease

 

Jo McGarry has been writing about food, wine and whisky in Honolulu for more than 18 years. She hosts a weekly radio show Radio MoJo, and is the founder of a restaurant specialty company, MoJo, The Business of Food.

Jo McGarry has been writing about food, wine and whisky in Honolulu for more than 18 years. She hosts a weekly radio show Radio MoJo, and is the founder of a restaurant specialty company, MoJo, The Business of Food.

There are many reasons restaurants fail. For some it’s the shock of how much work involved, for others it’s a combination of outside circumstances that usually involve unexpected life changes ; birth, death, divorce…, and for even more it’s an assorted mixture of poor planning and inconsistency in service and food. But surprisingly, even restaurants with mediocre food can hang around for quite some time. The main reason that restaurants close – is that nobody read the lease. It’s almost understandable, in a way. By the time you finally get to see a lease, you may have spent years dreaming of owning a restaurant. Pre-lease you’ve spent countless hours looking at spaces, trying to hire an architect, pricing equipment and working on your menu. When the lease arrives, its usually such a relief, most people look at the monthly total for rent and think ‘that’s ok,’ and sign on. The problem is, that while the monthly rent payment for the first 6 months might look ok, once you add compounded annual increases, marketing and promotional fees, Common Area Maintenance fees and all manner of extra charges written into the fine print, your rent could be double what you originally anticipated. So here are a couple of things to make sure you double check BEFORE you sign . How long is the term? If you’re investing your life savings, make sure you’re going to be in the space long enough to get your money back and make profit. Seems simple, but if you’re taking over a lease, or you have a relocation clause that may be activated, make sure you do the math on the term and what it means in dollars and cents. What’s the CAM anyway? Of course you know what the Common Area Maintenance is…. Or do you ? Check to see what it covers and what the expectation of the landlord is as the years progress. You may find you’re paying to re roof the property in year three – or that the property tax has doubled and the increase is proportionally passed on to you . Some larger shopping centers have a CAM that’s almost as high as rent. Make sure you put these ‘additional charges’ into the budget. Free Rent or TI ? Are you getting help from the landlord before you start renovating his building and paying rent? Think of the investment you’re making in the property, the length of term you will be there, and the value that you bring to the landlord, the property and the neighborhood. All of these things have a monetary value and many landlords are appreciative of having strong anchor tenants. Several months of free rent, or lowered initial payments, can make a significant difference to your all-important first year. What happens if you Assign? It may seem straightforward to you – you build up the business, decide your tired of working 24-7 and find a buyer who is eager and ready to start their own dream. Check the lease for assignment restrictions and you may find the landlord has other ideas. While it’s usual for a landlord to have the right to approve a sub lessor –the landlord may also feel entitled to significant part of your selling price. It just makes sense to check the assignment clause out before you sign. While exciting, there’s nothing really glamorous about signing a restaurant lease, and the amount of detail can seem overwhelming. That’s why hiring an attorney and a broker both well-versed in restaurant leasing makes sense. Look around – the most successful guys in the industry have a team of professionals dedicated to the restaurant’s success. They’re just not all in the kitchen.

Jo McGarry has been writing about food, wine and whisky in Honolulu for more than 18 years. She hosts a weekly radio show Radio MoJo, and is the founder of a restaurant specialty company, MoJo, The Business of Food. You can reach her @ Jo@mojomcgarry.com

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