COMMENTARY

3 Reasons why you won’t be able to sell your restaurant

3 Reasons why you won’t be able to sell your restaurant

By: Jeff Grandfield and Dale Willerton – The Lease Coach

There will come a time when you want to sell your business. Doing so would seem to be a fairly straightforward matter; however, as we explain in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, this is not always the case. 
As it pertains to the space you lease, here are three reasons why you may not be able to sell your restaurant as easily as you had hoped: 

  • Your current rent is too high (or seen as such): While your restaurant may be attractive and popular, your potential buyer could be scared off by what they perceive as high rent. If the buyer lacks business savvy or is not experienced (i.e. if this is their first business), even a reasonable rent may simply scare them.  A restaurant buyer once said to us, “the lease payment is twice my house mortgage” meaning the amount felt high and frightening to them.  But of course there is no co-relation between a house mortgage and a commercial lease rent.
  •  The landlord tries to raise the rent for the buyer:  The Lease Coach has seen this happen repeatedly! You need landlord consent to assign your lease agreement but the landlord points out the fine print in the lease that says, “the rent can be raised to fair market value” when you assign the lease. In the meantime, you’ve told the buyer you are paying $8K per month in rent but now the landlord wants the buyer to pay $10K per month – and it kills the deal.
  • You don’t have enough lease term left: If you are offering your restaurant for sale and have only a year or two left on your lease term, potential buyers may back off.  Firstly, if financing is required the buyer’s banker may only grant them a loan for the remainder of the Term. The buyer had wanted a 5-year loan but the bank will only loan on the remaining 18 months of the lease term.  Secondly, buyers want security – they are partially paying for your location so they want certainty of the Term.  The landlord may not grant a longer Term or will try to leverage big deposits, guarantees and rent increases that kill the deal.  Renewal Options are often not transferrable to the buyer/lease assignee.  The Lease Coach is often hired by the buyer or the restaurant seller to facilitate and negotiate the lease assignment process with the landlord.

Tens of thousands of businesses (including restaurants) are bought and sold throughout North America each year. Almost all of these deals require a lease assignment negotiation with the landlord or a new lease. A landlord can creatively or deliberately sabotage the sale of your business by being unreasonable.  
 

Cover photo by iStock Photos.


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