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Outside Insights | By Dale Willerton

How to Negotiate a Commercial Lease
Quick-serve operators must use finesse if they hope to benefit from a commercial lease negotiation.
If a commercial lease is negotiated properly, an operator can benefit for a long time to come.

For many restaurant owners, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While a restaurateur thinks of marketing, managing, and menus, savvy real estate agents and brokers are specialized sales people. Their job is to sell restaurant tenants on leasing their location at the highest possible rental rate.

Restaurant tenants may go through the leasing process once or twice in their entire lifetime, yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. 

Whether you are negotiating a lease renewal or leasing a new location for the first time for your restaurant, here are some tips for restaurant tenants.

 

Negotiate to Win: All too frequently, restaurant tenants enter into lease negotiations unprepared and don`t even try winning the negotiations. If you are not even negotiating to win, you won`t. With big commissions at stake, you can be sure the landlord`s agent is negotiating fiercely to win. Restaurant tenants should remember that it is okay to negotiate aggressively. 

 

Be Prepared to Walk Away: Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. A good restaurant in a poor location will become a poor business. 

 

Ask the Right Questions: Gathering information about what other tenants are paying for rent or what incentives they received will position you to get a better deal. Ask the right questions. Consider that your landlord and his agent know what every other tenant in the property is paying in rent, so you must do your homework, too. 

 

Brokers … Friend or Foe?: Real estate agents and listing brokers typically work for the landlord who is paying their commission. It is not normally the agent`s role to get the restaurant tenant the best deal; it is their job to get the landlord the highest rent, the biggest deposit, and so on. The higher the rent you pay, the more commission the agent earns. 

In leasing, restaurant tenants don`t get what they deserve, they get what they negotiate.

If you are researching multiple properties, try to deal directly with the listing agent for each property rather than letting one agent show you around or show you another agent`s listing. Your tenancy is more desirable to the listing agent if he can avoid commission-splitting with other agents. If you are relying on help from an outside agent—who is splitting the commission with the listing agent—is this outside agent really working for the tenant or the landlord?

 

Franchisor Involvement: If you are relying on a franchisor for real estate help and support, you may be disappointed. The franchisor may not have a dedicated in-house real estate department to assist you in these matters. Furthermore, the franchisor’s real estate rep, even if in-house, may be splitting or receiving part of the list agent’s commission.

 

Ask for More Than You Want: If you want three months free rent, then ask for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer and negotiate with you as well. Don`t be afraid of hearing “no” from the landlord—counter-offers are all part of the game.

 

Negotiate the Deposit: Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable and, more so than anything else, often serve to compensate the landlord for the real estate commissions he will be paying out to the realtor. 

 

Measure Your Space: Restaurant tenants frequently pay for phantom space. Many restaurant tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says. 

 

Negotiate, Negotiate: The leasing process is just that—a process, not an event. The more time you have to put the deal together and make counter-offers, the better the chance you have of getting what you really want. Too often, restaurant tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time. 

 

Educate Yourself and Get Help: Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a Webinar will make a difference. And, don`t forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake and with personal guarantees and other risks, you can`t afford to gamble. In leasing, restaurant tenants don`t get what they deserve, they get what they negotiate. 

Dale Willerton is The Lease Coach, a senior lease consultant who works exclusively for tenants.