Strap in for a journey that goes beyond the basics – we're diving deep into the heart of your restaurant's financial well-being and operational freedom.
So why is mastering your leases an essential skill to have? You've already got enough on your plate, but without knowing what’s in your leases and when important milestones are, you could be at risk of losing your location and out of pocket well over $400,000. That’s what happened to Tim Doktorski, Controller at Team Wow, a Domino’s Pizza franchise with 70 locations.
Picture this: your restaurant, thriving in a space perfectly tailored to your needs, thanks to savvy lease negotiations. Whether you're gearing up for a renewal or venturing into a new spot, I've got a checklist that's not just a list; it's your secret weapon to save those hard-earned dollars.
Let's talk terms.
It's not just about reading through the lease; it's about decoding it. I'm talking base rent, additional rent, lease duration – the whole enchilada. But it's the nitty-gritty that matters. Are all those documents attached? Are the blanks filled, or are they lurking with surprises? Let's get you armed with knowledge to navigate those leasing waters like a pro.
In the meticulous process of document scrutiny, ensure that all exhibits and referenced documents within the body of the lease are meticulously appended to the copy you are about to sign. Thoroughly inspect and verify that all blank spaces are appropriately completed or marked as N/A. The absence of any information in these spaces may conceal unforeseen complexities that could manifest at a later stage.
In the context of the lease term contingent on variables, introduce a Rent Commencement Date Agreement as an exhibit. Specify in detail that both parties, including yourself as the proprietor of the restaurant, will endorse the form to confirm the dates for the lease term. This ensures a clear alignment of expectations when your establishment officially commences operations.
Delve into the nuances of the clauses, particularly those pertaining to maintenance and repairs for the leased premises, HVAC maintenance, repair, replacement, and common area maintenance ("CAM") expenses. Exercise diligence in seeking clarification for any ambiguous language to forestall the prospect of overpayment in the future. This is the opportune moment to gain a comprehensive understanding of the financial obligations associated with the lease agreement.
Now, let's negotiate.
Lower rent, longer lease? It's a dance, my friend. Back it up with market research; let your numbers tell the story. Watch out for those CPI increases – they're like stealthy ninjas of rent hikes. And let's not forget concessions; landlords often have a few tricks up their sleeves, like tenant improvements or rent abatements.
Rent Terms: Here's a thought – how about scoring a lower rent if you commit to a longer lease term? It's a straightforward deal, but let's not just throw numbers around. Back up your proposed rent with some solid market research. Oh, and keep an eye out for CPI increases – they can sneak up and jack up your rent unexpectedly.
Concessions: Thinking about some perks for playing the long game? Ask about tenant improvements or rent discounts. Landlords often toss in a few extras for those willing to stick around. It's not about sweetness; it's about making business sense.
CAM Charges: Time to tackle Common Area Maintenance ("CAM") charges – the seasoning of the leasing world. Negotiate like a pro. Set a cap on CAM for the first year, ongoing caps, and throw in audit rights for good measure. It's about keeping things transparent and predictable, not adding unnecessary drama.
Exclusive Use Clauses: Want your own slice of the pie in the property? Request exclusivity in offering specific products or services. It's not about being possessive; it's about protecting your turf and ensuring you're not competing with your neighbors.
Assignment and Subletting: Sharing is caring, right? Discuss terms for assigning the lease or subletting the space. It's not a popularity contest; it's about understanding the landlord's rules so you can navigate any potential hiccups.
Finalize the Deal.
As you gear up for the final stretch of your lease negotiation, let's get down to business:
Legal Review: Time to call in the legal cavalry, the specialists in the retail leasing arena. Chat with legal counsel to dissect the lease agreement – your backstage pass to a smooth review. Address any legal concerns raised by your attorney; it's like having a seasoned navigator for the legal terrain.
Documenting Agreements: Think of this step as crafting the contract for your leasing story. Every negotiated change needs to find its way into the written script, right there in the lease. Verbal agreements might have a certain charm, but in the real world, a solid script is your best defense in the event of legal action.
Review Final Lease: Now, imagine you're the editor doing the final sweep before printing. Scrutinize every detail in the last draft, ensuring all the negotiated terms shine. This is your moment to confirm accuracy, like a meticulous editor making sure every word hits the mark.
Final Approval and Execution: Here comes the drumroll – time for the grand finale! Coordinate with the landlord to wrap up the lease agreement. Sign that lease with a practical touch, and of course, keep copies for your records. This isn't just a signature; it's your stamp of approval on the final chapter of your leasing tale.
Keep the momentum going.
Alright, let's keep the momentum going after that successful lease negotiation!
Don't let that hard-won lease victory be the end of the story. Keep those lines of communication wide open with the landlord, broker, or property manager. Why? Because these are the folks in the know, the ones who might just have the scoop on future hotspots that need a savvy tenant like you. Building a solid relationship isn't just good business; it's your secret sauce for future opportunities.
Schedule regular reviews to make sure everything is running smoothly and playing by the agreed-upon rules. Consider a deep dive when there's a change in ownership or management, when you're expanding your empire, when the rent is on the move, or during the triple net lease reconciliation. It's like preventive care for your lease.
Got your hands on lease management software, like Leasecake? Awesome – it's like having a personal assistant for your business dates. Automated reminders will be your best friend. But if you're doing it the old-school way, make sure you manually handle those reminders.
Feeling like a lease renewal might be on the horizon? Time to gear up for round two. Start the renegotiation dance well in advance. Some renewals kick off up to 24 months beforehand, and trust me, waiting too long can dull your negotiating sparkle. Stay ahead of the game, and you'll be in the driver's seat.
Remember, your lease is not just a piece of paper; it's the foundation of your success. With these steps, you're not just negotiating; you're orchestrating a symphony that leads to profitability and beyond.
For those seeking extra support, check out lease and location management software at www.leasecake.com. Because in the world of lease negotiations, having the right tools can make all the difference.
Here's to mastering the art of lease negotiations and securing the best deal for your restaurant's success!
Taj Adhav
Founder, Leasecake