IMPORTANT TRANSACTION ADVICE FOR BUYING A RESTAURANT
When you open a new restaurant, it is rarely a turn-key operation. You often have to do some renovations prior to opening. This may include minor cosmetic changes, or even a complete gut and reconfiguration of the space. The problem is that you aren’t earning money during this period, and the extra expense of the lease (on top of the renovations) drains your budget and the resources you could allocate to this project.
Did you know that it is sometimes possible to negotiate a rent-free period to give you time to complete renovations? The period must be relatively short and proportionate to the degree of renovations required, as well as the lease term. The longer the lease period and the higher the rent, the greater the likelihood that you will be able to negotiate this type of concession. Keep in mind that the landlord will want to earn rent when your business is operating. The lease can be written to start lease payment on the earlier of your business opening or the agreed-upon start date. Examples of such lease clauses are provided below:
COMMENCEMENT DATE: The first (1st) day of the first month following the expiration following the earlier of: (i) four (4) months subsequent to the date hereof; or (ii) the date that the Tenant opens for business at the Leased Premises.
Tenant’s Work. Tenant shall be afforded early access to the Leased Premises and Tenant shall, at Tenant’s cost and expense, be entitled to renovate the Leased Premises. The provisions of this Lease with respect to alterations shall be fully applicable in terms of the scope of the work to be performed and Landlord’s consent with respect thereto. All of such work of the Tenant shall be performed in a first-class manner and in accordance with all applicable building codes, rules and regulations.
Early Access. Tenant shall be permitted early access to the Leased Premises subsequent to the date hereof for purposes of performing the Tenant’s Work. If Tenant is permitted access to the Leased Premises prior to the Commencement Date for the purpose of installing fixtures and getting ready to open for business, such early entry shall be at Tenant’s sole risk and subject to all the terms and conditions of this Lease as though the Commencement Date and occurred, except for the payment of Base Monthly Rent and Additional Rent, which shall commence on the Commencement Date (with Tenant being required to pay per diem rent as set forth herein). Prior such early access, Tenant shall be required to furnish the Tenant’s insurance as set forth herein.
BASE MONTHLY RENT
General. Throughout the Term of this Lease, Tenant shall pay Base Annual Rent to Landlord as rent for the Leased Premises, and the same shall be payable as Base Monthly Rent in advance on or before the first day of each calendar month of the Term. Tenant shall also pay per diem rent at the rate of TWO HUNDRED and 00/100 DOLLARS ($200.00) measured from the earlier of:
(i) four (4) months subsequent to the date hereof; or
(ii) the date that the Tenant opens for business at the Leased premises.
through the last day of the last month in which such event occurs. Such per diem rent shall be payable on the earlier of (i) four (4) months subsequent to the date hereof; or (ii) the date that the Tenant opens for business at the Leased Premises.
These provisions in the lease allow you to enter the premises before the start of your lease period. They also lay out the terms for this privilege. In this case, the the tenant must provide proof of insurance before access will be granted.
Lease negotiations can be difficult. Bottom line, the Landlord is interested in making money from the Tenant’s use of his space. But that is not to say that the Landlord will not consider alternative arrangements if he knows that the return on investment will pay off in the long run. The task will be in showing him during negotiations that you have a solid, viable business plan that will make you an excellent long-term tenant and that you intend to compensate the Landlord for these provisions.