Commentary

8 things to know before leasing commercial space

In leasing, restaurant tenants don't get what they deserve, they get what they negotiate.

October 24, 2017

By Jeff Grandfield and Dale Willerton, The Lease Coach

For many restaurateurs, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While restaurateurs think of marketing, managing and menus, they are always not real estate focused; savvy real estate agents and brokers are specialized sales people. Their job is to sell tenants on leasing their location at the highest possible rental rate.

Restaurant tenants may go through the leasing process once or twice in their entire lifetime — yet they have to negotiate against seasoned professionals who negotiate leases every day for a living.
Whether you are leasing a new location for the first time for your restaurant or negotiating a lease renewal, these are some tips for restaurant tenants:

1. Negotiate to win: All too frequently, restaurant tenants enter into lease negotiations unprepared and don't even try winning the negotiations. Often, restaurant tenants mistakenly set their sights on just striking a fair deal. If you are not even negotiating to win, you won't. With big commissions at stake, you can be sure the landlord's agent, on the other hand, is negotiating fiercely to win. Restaurant tenants should remember that it is okay to negotiate assertively.

2. Be prepared to walk: Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. Developing a mindset that includes walking away from any deal that doesn’t suit your needs will save you a lot of time, money and aggravation. A good restaurant business in a poor location will become a poor business.

3. Brokers … friend or foe? Real estate agents and brokers typically work for the landlord who is paying their commission. It is not normally the agent's role to get the restaurant tenant the best deal – it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more space you agree to lease and the longer lease term you sign for, the more commission the agent earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent's listing. Your tenancy is more desirable to the listing agent if he can avoid commission-splitting with other agents.

4. Talk to tenants: Some of the best inside information available is from tenants already in a building. Introduce yourself as a prospective tenant and ask for their honest opinion of the landlord. Inquire about the level of property maintenance, the rental rates and the tenant’s future intentions to stay another term and so on. What you learn may surprise you; use this information wisely in your own negotiations.

5. Never accept the first offer: Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent's first offer. More often than not, the first offer or rental rate is inflated. Many agents use a strategy of starting lease negotiations at a rate that allows them to give in slightly. While you may meet a few exceptions to this, the majority of agents build in room to maneuver and expect you to counter-offer.

6. Ask for more than you want: If you want three months free rent, then ask for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer and negotiate with you as well. Don't be afraid of hearing "no" from the landlord — counter-offers are all part of the game.

7. Measure your space: Restaurant tenants often pay for phantom space. Most restaurant tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says.

8. Educate yourself: Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a webinar will make a difference. And, don't forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can't afford to gamble.

In leasing, restaurant tenants don't get what they deserve, they get what they negotiate.

Cover photo: istock

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