7 Tips for Negotiating a Restaurant Lease

When looking at leasing a restaurant space, it's important to know your rights and not rush into any decisions. Here are some tips when negotiating a lease:

1.) If a premises has been vacant for a while and in this slow economic current climate, it may be possible to negotiate a lower monthly rent payment. Examples include

• getting the first couple of months' start-up for free
• not paying until the restaurant opens for business
• or pro-rating rent so that it is very low rent for the first year of the lease but it increases thereafter (though be careful not to entrap yourself in an expensive lease because you back loaded the payments.)

2.) During the negotiation stages, ensure that the space is checked thoroughly and passes various inspections (fire safety, health inspector checks, etc.) and detail any items of disrepair before you move in. If any alterations or repairs are necessary, discuss with the landlord which repairs he is willing to foot the bill for. As a general rule, if any repairs will 'stay with the building' after you have left, such as plumbing work, it should be the landlord's responsibility to pay for these or to deduct the costs from your rent.

3.) Ensure that any agreements made with your landlord about paying for repairs are put into writing.

4.) Consider building in the following clauses to your lease agreement to protect your business. Possible add-on clauses include:

• sublease (to allow you to sublet the space to another business if necessary).
• a break clause. (allows you to end a lease early if necessary).
• co-tenancy (if the landlord has an anchor tenant, this clause allows you to break the lease if this tenant is not replaced by a certain time).
• exclusivity (to prevent your landlord leasing any other of his premises in the same location or complex to your direct competitors).

5.) Ask that the lease be put in the name of your corporation and not your name personally.

6.) It is not standard practice to pay for the landlords legal costs, so make sure you do not offer to do this during the negotiation phase.

7.) It is important to investigate the consequences of defaulting on lease payments. Find out how the landlord would react (e.g. will they lock the premises immediately or begin eviction proceedings?)

THE FIG TREE

Mission
Sales of $ 350K the first year, more than half a million the second. Personnel costs less than $300K the first year, less than $400K the second year. Profitable in year two, better than 7.5% profits on sales by year three.

Summary
The Fig Tree offers Denver a trendy, fun place to have great food in a social environment. We focus on organic and creative food. Our strategy is simple - we intend to succeed by giving people a combination of great, healthy, interesting food, and an environment that attracts a trendy, downtown crowd.
Most important to us is our financial success, but we believe this will be achieved by offering high-quality service and healthy, local food delivered by food-service professionals with a long-history in the restaurant business.

Location
We have found an excellent location and secured the lease for $2,000 per month. We will be able to set up shop in time to begin turning back a profit by the end of month eleven and be profitable in the second year. We need raise a total of $40,000 in capital, plus a $100,000 SBA-guaranteed loan, to start up the company.

Marketing Strategy
The market and financial analyses indicate that with a start-up expenditure of $141,000, The Fig Tree can generate over $365,000 in sales by year one, $565,000 in sales by the end of year two and produce net profits of over 7.5% on sales by the end of year three. Profitability will be reached by year two.

More Info
The Fig Tree believes that the market can be segmented into three distinct groups that it aims to target. The first groups are the young and affluent which number 275,000 people in Denver. The second group that will be targeted are downtown office workers - a group that i growing at an annual rate of 4% annually with 150,000 potential customers. The third group are recovering hippies who naturally desire organic foods as well as ethnic cuisine. No one knows how many they number but it is a growing segment!