How to Avoid a Leasing Horror Story

The restaurant industry is filled with the ghosts of restaurants that had everything going for them in terms of food and service, but failed as businesses. High on the list of reasons that restaurants do not reach their financial objectives are poorly negotiated leases that handcuff the operator with excessive startup costs, high rent payments, or other onerous terms.

In this article, we'll examine some key lease issues, provisions and rules of thumb that can affect whether your lease becomes a friend or foe of your business. Remember, signing a building lease leads to a long-term relationship between you and a landlord and its provisions will affect your business for years and maybe even decades to come. Don't let it haunt an otherwise great restaurant.

First Rule -- Everything is Negotiable

In discussions with operators, leasing specialists and attorneys, a common theme about lease terms keeps surfacing: Everything is negotiable. Although there is a common framework or structure to most lease agreements, there is great variation in the specific terms. Don't think that just because a term or condition is in the landlord's standard lease form that it's carved in granite. We've learned of many operators who received concessions they never thought possible, including liability, percentage rent, renewal options and more, just by asking for it. Sure, your position in a lease negotiation will be dictated to some degree by the supply of space in your area, but the market forces can often swing in your favor. Landlords don't like vacant properties.