There are a number of provisions that can be written into a commercial lease that benefit either the lessor, lessee, or, in certain circumstances, both. Although commercial lease terms are important to every business, they are of particular importance to restaurant owners where low profit margins require added attention to limiting operating costs. Lease payments can directly impact the success or failure of a restaurant.
Prior to entering into lease negotiations, it's helpful to start with a feasibility study. A feasibility study evaluates the potential of a restaurant concept taking into consideration the location and demographics. Feasibility studies analyze the industry, relevant markets and marketing needs, capacity, traffic in the area, competition, costs structures and management requirements. Obtaining a feasibility study prior to entering into a lease increases the likelihood that the restaurant concept will be successful.
Although it's best to consult an experienced commercial lease lawyer
prior to entering into any restaurant lease, there are some key issues and terms restaurant entrepreneurs should play particular attention to:Consider the Space
Seating and aesthetics play an important role in the operation of a restaurant . Seating capacity is dictated by the size and shape of the leased space. In the restaurant business, any where from ten to twenty square feet per person is generally considered sufficient for seating purposes. However, the restaurant's theme, operation and aesthetics affect capacity. It's important to ensure that the guests have enough space to dine comfortably and the staff have enough room to adequately serve the guests. It's also important that adequate space is reserved for the kitchen, particularly when the location wasn't originally a restaurant. Does the proposed location provide adequate square footage for the concept? Short Term Lease
Because the restaurant business is so unpredictable, it is difficult to say with any certainty whether a particular new venture will be successful. A short term lease provides a prospective new restaurant owner with less long-term risk. With a two or three year lease, the tenant is provided greater flexibility if the business starts to fail. Landlords on the other hand generally prefer longer term leases and will most often seek a higher rent in exchange for a shorter term. A short term lease can also backfire. Landlords may take advantage if the restaurant later proves a huge success demanding much higher rent and less favorable terms for a new lease. To limit this risk, prospective tenants should seek an option or options to extend the term of the lease. Tenant Improvements
Building out (remodeling) a new location is perhaps the largest expense for any new restaurant. A successful restaurant design is fresh and innovative and requires significant modification to the premises including the tearing down and erection of new walls, partitions, doors, windows, skylights and ceilings. Creating an ideal atmosphere is critical to any restaurant concept. It is often possible to negotiate for build-out costs in the form of a tenant improvement allowance. Landlords are often willing to pay some or all of the costs associated with a build-out particularly where a long term lease is being negotiated. Of course, as with any negotiation, there is a give and take with respect to other important terms. Short term leases are often desirable for new businesses, making it necessarily more difficult to secure larger tenant improvement allowances. Exclusivity
New restaurants want as little competition as necessary. Determining where the nearest competing businesses are is an important factor in selecting the right location. The worst thing that can happen after opening for business is to have a competing restaurant move next door or in the same center. There's not much that can be done about properties that aren't under the control of your landlord. However, Landlords will often agree to exclusivity within the property they control, as long as the exclusivity language is not too broad. Language that restricts the landlord from renting to any other Italian restaurants during the term of the lease is reasonable. It's always a good idea to negotiate for exclusivity.
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