Starting a new restaurant or bar is one of the most complex, challenging career paths you could choose. Even if you are a master of the culinary arts or handcrafted cocktails, great at employee relations, customer service, and marketing, you can still destroy your potential for earnings by making key mistakes in the area of real estate. The same applies for well-established businesses.
If you are considering a leasing a building for your business, there are many potential mistakes and pitfalls you need to understand. Without proper knowledge and help, many well-established restaurants and bars have gone under because of simple mistakes in their lease negotiations and the final lease. Do not let your business become a statistic.
As you start exploring your real estate opportunities, make sure to follow these steps in order to protect the future of your business:
The most common mistakes people make when starting a restaurant is to handle their leasing decisions on their own. Work with an experienced broker and legal team that will protect your rights and help you make sound decisions in the process.
Understand who is on your side.
While the landlord and its broker may be nice to you and give you lots of free advice, usually that’s worth exactly what you pay for it, because they have no duty to protect your interests.
Your attorneys are the ones you can count on to always work in your best interests and give you counsel that will help you make the right decisions regarding your lease options.
Although lease terms are very important to your business’ success, many people do not negotiate the details of the agreement beyond the monthly rent payment. There are many lease terms that can be negotiated, including:
- Rent abatements
- Tenant improvement allowances
- Net charges and common area maintenance
- Contingencies for liquor license and permits
- Parking rights
- Competing businesses allowed in the same building or complex
- Assignment and subleasing rights
- Utilities and garbage removal costs
- Personal guarantees
- Lease term and renewals
- Options to purchase the building
Before signing a lease agreement, it is critical to do thorough research to make sure your investment will pan out:
- Research the landlord: Talk with other tenants or neighbors, do some searching online. Do whatever you can to get as much information as possible on the landlords.
- Look into the historical building costs: Get documentation of the actual operation and management costs for the last three years. This will give you an idea of your likely expense for these items beyond the rent.
- Make sure the building will work for your needs: Make sure the space will work for your needs. Can you get the permits you need to operate your business or make the necessary improvements to the space? Will intended changes require upgrades for new code or ADA compliance? Will you have enough parking for customers, or do you have to share those spaces with other tenants? It’s also important to consider the finer details like the bathroom spaces, room for guests, kitchen space, etc., to make sure the building will work on a practical level for your operating needs.
Check that contract.
Even after you have diligently researched all aspects of your lease agreement, unexpected errors and oversights can still arise in the contractual language. If you have been promised something, don’t count on it happening unless it is in the lease. It is critical to make sure to have that contract looked over by an experienced business and real estate lawyer to make sure there will be no surprises. The complications of business and real estate law present many pitfalls that could derail your business, and should be handled by someone trained and experienced in these matters. You will have enough to think about getting ready to open your new location.