Helpful Techniques In
Negotiating Your Lease - Part I
As
a former restaurant owner and as a restaurant broker
I have negotiated over 300 leases. As a result of my
experience I thought it would be helpful in this
issue and the next issue to discuss some of the most
important aspects of negotiating a lease. In
addition to the topics discussed below I’ll be
covering the following topics in the future –
assignment and sublease rights, use clause, options
and determining rent in the option period, first
right of refusals, options to purchase the building
and landlord contributions.
1. YEARLY
RENT INCREASES - Yearly rent increases should be
tied to either pre-negotiated fixed yearly rent
increases or the Consumer Price Index (CPI) with a
maximum or ceiling and preferably no minimum or
floor. Typical yearly fixed increases range from 2
to 4% and yearly CPI adjustments have a ceiling of 5
to 6% and if you have to agree to a floor or minimum
they range in the 2 to 3% range. Needless to say it
is helpful if you can lock your rent in for several
years at a time and have adjustments every 2 to 5
years.
2.
PERCENTAGE LEASES - If the Landlord insists on a
percentage lease you should cap the percentage to 5
to 6% of yearly sales. In exchange for a percentage
rent you should negotiate a below market minimum
rent and have the Landlord make a monetary
contribution to any remodeling you plan to do. If
you have a NNN lease where you are paying the real
estate taxes, building insurance and common area
expenses (CAM) which includes landscaping, security
and other maintenance costs you should negotiate a
RECAPTURE PROVISION whereby you can deduct from your
percentage rent dollar for dollar any of these NNN
expenses. For example if your total rent is $80,000
per year, of which $60,000 is base rent and $20,000
is additional percentage rent and your NNN expenses
are $15,000 you should be able to deduct those
$15,000of NNN expenses form your percentage rent. So
instead of paying $95,000 ($60,000 base rent +
$20,000 percentage rent +$15,000 NNN expenses =
$95,000) a year of base rent plus NNN expenses you
are only paying a total of $80,000 ($95,000-$15,000
of NNN expenses against your percentage rent
=$80,000) rent which is a savings of 16%.
3.
DETERMINING MARKET RENT – If you are negotiating
a new lease or renewing a lease the best way to
determine what the market rent is to talk to several
reputable commercial brokers who do retail
restaurant leases in the area of your restaurant.
Also drive your area and look at for lease signs and
call the brokers and ask what the rent is. Then talk
to several restaurant owners in your area and ask
them what their rent is. Then take an average of the
rents you’ve surveyed and use this number as a basis
for negotiating with the landlord. If you are
negotiating a new lease and have had a good prior
track record as an operator use your past background
to get the landlord to give you a favorable rent. If
you are renewing a lease capitalize on your past
success as a tenant in terms of paying your rent on
time, keeping the premises maintained, etc as a tool
to negotiate a favorable rent.
If you are
negotiating a new lease or renewing your lease
please feel free to get in touch with us at
Restaurant
Realty at 415-945-9701
to help advise you through this important process.
Restaurateurs of the Quarter -
Guy Carson Of Café Du Nord
We
recently had the pleasure of selling Café Du Nord, a
nightclub, restaurant and live music venue to Guy
Carson and his partners. Located at 2170 Market
Street in San Francisco the business is open from
4p-2a Wednesday through Saturday and 6p-2a Sunday
through Tuesday. The Café built in 1907 is located
in the basement of the landmark Swedish-American
building in the Upper Market district.
As a child
in Chicago, Guy would tinker with the radio knobs
until he accidentally tuned into a San Francisco
radio station and learned about Bill Graham, The
Fillmore, the Jefferson Airplane and all the
intriguing musical activities occurring in the SF
Bay area. This resulted in Guy coming to San
Francisco where he began a colorful 20 year stint as
a musician (he was a bass player), singer and song
writer. He also became an individual producer of
live music and entertainment shows. For 10 years Guy
was the General Manager of the Hotel Utah in San
Francisco which featured a music, entertainment,
food and full service bar venue and after this he
was a booking agent at the Great American Music Hall
and worked with the greatest talent in the business.
Guy’s
mission at Café Du Nord is to build the best of its
class music venue in the area. The club features the
most eclectic music calendar in the market ranging
from punk, jazz, Indian, rock, etc.
The menu specialties
include fried calamari with spicy Thai sauce, steak
frits, and sourdough burgers. If you want to relax
and have a good time in a cozy and homey atmosphere
come for a great show and a meal to match.
