Helpful Techniques In
Negotiating Your Lease - Part II
As
a continuation to our last article I will discuss
further some additional important points regarding
lease negotiations which I believe will be helpful
to you.
1. ASSIGNMENT AND SUBLEASE RIGHTS – Having the
proper language in this section of the lease is
extremely important in helping you sell your
business. This language should include the words
“the Landlord will not unreasonably withhold
consent” in consenting to an assignment.
Additionally you want to have the right to sublease
and keep any of the excess monies from a prospective
sublease ( this is called a spread- the difference
between the rent you are paying the Landlord and the
rent you are receiving from the Sub lessee or at the
minimum being able to share this spread 50/50 with
the Landlord).
2.
OPTIONS – These are helpful to you in giving you
the added years necessary to operate your business
as well as making it easier to sell your business.
Try to get the first years rent of each term of the
option nailed down up front so you aren’t the victim
of runaway rent increases which make it economically
unfeasible to operate. Try to stay away from the
market rent formula and try to have the rent tied to
a rollover of the Cost of Living (CPI) in the
proceeding year. For example if you have a five year
base term with a five year option and the rent in
the fifth year of the base term is $4000, set up the
rent in the first year of the option period to it is
tied to CPI (assuming CPI is 3% for the proceeding
year the rent for the first year of the option would
be $4,120 or $4000 x 103% = $4,120). Make sure that
the options are assignable too.
3. RIGHT
OF FIRST REFUSAL – This is a very helpful tool
for you and gives you the right to purchase the
building should the Landlord put the building on the
market during your tenancy. The way this works is
that if the Landlord gets an acceptable offer from a
third party buyer he has to come to you to give you
the opportunity to match or exceed that offer
usually between 15 to 30 days from the date this
offer is received.
4.
LANDLORD CONTRIBUTIONS – Having the landlord
contribute capital improvement money to you based on
so many dollars a square foot (i.e. $25 per square
foot) is helpful in reducing your initial
investment. If the Landlord is willing to do this
have it structured so are not obligated to pay back
this contribution through increased rent.
5.
CAPPING NNN EXPENSE PASS THROUGH - Make sure you
have language in your lease to protect you should
the building be sold or transferred and the building
is reassessed and you are responsible for paying a
pro-rata share of the real estate taxes. This
language (capping your real estate tax liability)
will result in your real estate tax liability being
limited only to the assessed value of the building
to your lease inception date and will limit your
future tax liability. Have caps also built into your
lease for insurance and Common Area Maintenance
(CAM) expenses to minimize future expense increases
in these categories as well.
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 -
John Sarran Of Bubba’s
I recently had the opportunity
in selling Bubba’s Diner , 566 San Anselmo Avenue,
in San Anselmo to John Sarran, an experienced
restaurateur. John graduated with honors from the
Culinary Institute of America and University of
Denver School of Hotel and Restaurant Management.
His experience includes management and chef roles at
Seafood Peddler, San Rafael ; Red Tractor Café,
Oakland ; Red Lobster Restaurants; Marin County
Club; Pacific Fresh Restaurants and several other
fine restaurants in the area.
John’s
culinary skills will result in an exciting revamp of
the already popular menu. A sampling of his menu
items will include: apple waffles, mini-swedes
pancakes- cinnamon, vanilla dollar size cakes, apple
mini pancakes – rolled with caramelized apples,
cinnamon and whipped cream, spicy Thai eggplant
omelette, rosemary garlic chicken, homemade pies,
veggie sandwich – basil, eggplant and sautéed
mushrooms, sliders – 4 mini cheese burgers, apples
walnut and blue cheese salad, and Marco Polo salad –
rosemary roasted chicken, spinach, crisp wonton
fries, grapes and candied walnuts.
The diner is
currently being remodeled and will be open by the
end of October and the operating hours will be
Wed-Fri 9a-9p, Sa-S 8a-8p and Mon 9a-9p. We wish
John continued success is his new venue.
