A good number of people looking to start a restaurant business lack the substantial capital to build a solid structure; therefore many end up leasing their restaurant space. Leasing your restaurant space comes with its own benefits, especially since you won’t have to bother about gigantic mortgage payments (you do need to worry about rent, though) or taxes, or the cost of maintenance.

Although building your restaurant space can have its own benefits, it may not always be ideal especially when you are starting up. Experts note that acquiring your restaurant space or structure will only seem ideal if you plan to stay in the same location for over 7 years. But since new restaurants can barely predict the level of growth and expansion in 7 years, it is always better to rent or lease.

Have it in mind that your new business might become so successful that you have to move to a bigger and better location, or you might switch plans and try to target a different neighborhood or demographic. Therefore, to ensure that your business can continue to stay flexible, it is advisable that new businesses lease their space.

However, before signing any lease, whether long term or short term, it is imperative you do your research and homework. You also need to find out if the landlord is someone you can have a genuine working relationship with. Ask around to know why the space is vacant and if it would suit your restaurant concept.

Note that you might find an empty affordable space, but not all will suit your business concept and plans. For instance, a former office or retail shop may not have the necessary requirements for a licensed eating establishment.

If you find a suitable space but you feel or plan to make extensive renovations, first find out if the space will pass the initial inspection. Consider bringing in the fire marshal, health inspector, and building code officer (code enforcement officer) to evaluate and tell you what you have to do. Sometimes, after all the initial visits, you may choose to get another space due to expenses associated with the renovations.

Tips and Strategies to Lease a Restaurant Space

Leasing a restaurant space without a detailed plan is like walking into a grocery shop void of a shopping list. Searching for a commercial space for your restaurant is a step that requires knowledge about leasing options and the ability to negotiate a lease with your landlord. To help you make the best decision for your business, here are steps to find and lease a good space for your restaurant.

  1. Understand What You Want

First and foremost, restaurants come in varieties of shapes and sizes, from local hole-in-the-wall shops to exotic cafeterias. Depending on the concept of you have in mind, you probably already know what you want your restaurant to look like inside.

The ideal space for your restaurant may not, at first, seem like the perfect space. But a good number of restaurants are popular because of their location and not the shape or set up inside the building. ​Understand that you can make renovations, add extensions, or redesign the restaurant to fit a not so good space in a great location.

  1. Do Your Research

The importance of extensive research cannot be ignored when looking to lease a suitable space for your restaurant. Note that research will help you understand the pros and cons for each location. Most restaurant businesses succeed by standing out from the many lots in their area.

To be profitable, you need to have an edge in your local market and attract enough customers to generate the revenue. If any of the spaces you look at are in locations that won’t allow you to do that, and then it might just not be the perfect space.

  1. Have a Realistic Budget

Don’t start looking up restaurant space for lease without first having a budget you’re comfortable with first. New restaurant owners tend to underestimate the cost of starting their restaurant, as well as how long it will take the restaurant to become profitable. Have it in mind that over-extending your budget before you open your doors for business will make it even hard to get a return on your investment.

  1. Do a Landlord/Location Background Check

After you must have selected a restaurant space, take your time to find out as much as you can about your potential new landlord. Ensure to have an in-person conversation to get a firsthand experience of their expectations and communication style. If you have issues getting on the same page in an initial conversation, a long-term business arrangement might have to be reconsidered.

In addition, if there are other businesses in the same location, take time to find out the owners and ask if the landlord is easy going. You can also ask about pros and cons of the location, foot traffic, and customer patterns. Also, remember to look out for both red and green flags right before you take the next step.

  1. Don’t Be Scared to Bargain

The earlier you understand that rent is often flexible, the better you are in terms of negotiation and discussion. A good number of landlords in this modern age prefer to rent their real estate rather than have it remain vacant. If no one has been in the space for some time — or if other properties hardly retain tenants — the owner may be open to negotiation.

Note that basic rent negotiations for a new restaurant include not paying until the restaurant begins operation, also referred to as pro-rating rent, or paying a low rent the first year of the lease, then increase it gradually each year.

  1. Understand What’s Included in the Rent

When negotiating your lease, ensure you understand explicitly what is included in it. Are you expected to cover all the utilities, or are some included in the cost of rent? What of trash removal, water, and sewer coupled with heat and electricity?

If you can negotiate a better or cheaper rent, you can try to get your new landlord to cover some of your utilities. Ensure that your lease agreement notes who is tasked with building repairs, expected renovations, general maintenance, and pest control.

Also ensure it comes with provisions about insurance coverage and liability in the case of damage to the building, both in the case of negligence (for instance, a fire in the kitchen) as well as acts of God (such as wildfire or earthquakes).

  1. Don’t Accept the First Offer

Even if the first offer seems reasonable, or you have no idea of what to negotiate for, it is always advisable not to accept the first offer. Most times, the first offer or rental rate is inflated; a good number of agents start leasing negotiations at a higher number so they have enough room to haggle. Although you may jam a few exceptions to this, howbeit most agents give you a higher number and expect you to counter-offer.

  1. Don’t be Afraid to Walk

When negotiating a lease, it is critical to understand the importance of being rational and to make objective decisions. If you genuinely love the space but the numbers don’t seem encouraging and the property owner isn’t prepared to reduce their price, do not be scared to walk away. Note that securing a beautiful location that you can’t afford would more or less result in you not having enough to pay other expenses associated with starting a restaurant.

  1. Create an Exit Plan

No entrepreneur wants to consider the fact that their business might close down, especially not before it is even open. But according to industry reports, a good number of new restaurants close within the first couple of years. Therefore, to ensure peace of mind and practical reasons, it is advisable you limit your lease to one to three years at the outset.

If all goes well, you can extend or even decide to move to a bigger space. Ensure that your lease states how and when it does end. In addition, it should stipulate how your landlord is expected to contact you if your lease will not be renewed or your rent will be raised.

  1. Consider a Broker

Although it may be tempting to seek the expertise of a real estate agent or broker, however note that they most times work for the landlord. Have it in mind that their aim is to get the landlord the highest rent possible and get a big commission for themselves, not to get you, the tenant, and the best deal achievable.

Also note that the longer your lease term, the higher the rent and the more space you agree to lease, the more money the real estate agent bags. But if you intend to search several properties, it is advisable to work directly with each property’s listing agent instead of letting one show you other agent’s listings. Note that this will help you avoid commission-splitting and make your tenancy more economical.

Conclusion

The space you choose for your restaurant can make or break the business. Have it in mind that so many factors go into making a commercial space the right space for your restaurant. Once you have found the right space for your new restaurant, it is time to meet with the landlord and lawyers to put together a contract. Never relent to ask questions and suggest changes during this period or process.

Frequently Asked Questions

  1. How Do You Lease A Restaurant Space?
  • Set a realistic budget (and stick to it)
  • Thoroughly research the neighborhood.
  • Find out how much square footage you need.
  • Calculate estimate sales targets to cover expenses.
  • Assess the restaurant space’s potential.
  1. What Type Of Lease Is A Restaurant?

A restaurant lease is considered a long term lease and as a matter of fact, most lease terms for restaurants are about five years long, with additional five year options added on.

  1. How Do You Negotiate A Restaurant Lease?
  • Negotiate to Win.
  • Be Prepared to Walk Away.
  • Ask the Right Questions.
  • Brokers
  • Never Accept the First Offer.
  • Ask for More Than You Want.
  • Negotiate the Deposit.
  • Measure Your Space
  1. How Do You Find A Restaurant To Lease?

You can find a restaurant to lease from the internet and some of the most popular sites include:

  • com (their free network of licensed commercial real estate experts do all the searching for you to save you time finding restaurant space for lease)
  • com (you can search for commercial space for lease yourself, for a fee)
  • com (businesses for sale)
  1. Is A Restaurant A Retail Lease?

It depends on the size of the restaurant. Please note that a shop that is less than 1,000 square meters in size, sells and supplies goods and services, and is a retail business is covered by the Retail Leases Act 1994 (the Act). The lease needs to be for six months and less than 25 years.

  1. How Much Is It To Lease A Restaurant?

The cost of leasing a restaurant depends on loads of factors, but in most cases, the industry’s collective experience shows that the lease cost should total no more than 5 to 8 percent of the restaurant’s total revenues. On that basis, a neighborhood restaurant with $800,000 in sales should expect to pay $40,000 to $64,000 a year.

  1. How Does Leasing A Restaurant Work?

Here is how leasing a restaurant work;

  • Set a realistic budget (and stick to it)
  • Thoroughly research the neighborhood.
  • Find out how much square footage you need.
  • Calculate estimate sales targets to cover expenses.
  • Assess the restaurant space’s potential.
  1. What Is A Restaurant Lease Agreement Why Do You Need One?

A restaurant lease agreement is a standard legal document used by landlords or lessors when renting their commercial restaurant property to tenants or lessees. This extends to restaurants in shopping malls, standalone restaurants, coffee shops, and other food venues.

You would need a restaurant lease agreement because it is a document that can protect you against any court case with the landlord and the in some cases against law suits from the government.

  1. How Do You Open A Restaurant?
  • Conduct your feasibility studies
  • Learn Everything you need to learn about opening and operating a restaurant
  • Determine the type of restaurant to open or whether to start from the scratch or to operate a franchise.
  • Choose a name and register the business
  • Draft a detailed Business Plan
  • Secure the needed licenses and permits
  • Apply for an EIN (Employer Identification Number) / Federal Tax ID Number.
  • Open a corporate bank account
  • Lease or rent and furnish your restaurant facility
  • Hire employees
  • Market and promote your restaurant business
  1. What Should I Look For In A Restaurant Space?

Here are some of the things you should look out for in a restaurant space before leasing;

  • The parking spaces available within the restaurant facility
  • The type of facility and the space available to you
  • The demographic composition of the location where the restaurant facility is located
  • The cost of leasing and maintaining the restaurant facility
  • The safety and security of the facility
  • The visibility of the restaurant facility
  • The hidden charges and the terms and conditions attached to the lease agreement
  1. How Long Is A Restaurant Lease?

In general, most lease terms for restaurants are about five years long, with additional five year options added on. If you’re looking for a better monthly rate or more money to cover renovations, you might need to consider signing on for a longer term.

  1. Should You Lease Or Purchase Commercial Space For Your Restaurant Business?

To a large extent, this will depend on loads of factors such as your financial capacity and of course the goal and vision of the business. All things being equal, if you have the required finance, it is to your advantage to acquire a property to be used for your restaurant; it usually gives you the freedom to design the facility the way you want t it to be and install safety gadgets as you so desire. But if you are low on cash, then you don’t have any option other than to lease a facility.

  1. Should You Buy A Restaurant Franchise Or Open Your Own?

When it comes to starting a business of this nature, it will pay you to buy the franchise of a successful and well–established restaurant brand as against starting from the scratch. Even though it is relatively expensive to buy the franchise of an established restaurant brand, but it will definitely pay you in the long run.

  1. How Much Does It Cost To Lease Restaurant Equipment?

Leasing a full set of kitchen equipment usually runs anywhere from $1,000 to $5,000 per month, depending on the type and size of equipment you choose. However, many restaurants choose to buy certain items and lease others.

  1. Do Restaurants Own Their Buildings?

This to a large extent it depends on some factors such as finance and locations, but in recent times, due to the cost of building a new location (and the requirements to qualify for a loan of that size), most new restaurants will lease their building. However, as one’s business grows in size, the option to build/own may become an option over time.

  1. What Is A Business Lease?

A business lease (quite often called Business Contract Hire, or BCH) is a contract deal that’s used for company cars. A VAT registered company can lease cars for a few years with fixed monthly payments, and the cars may be used by employees for personal use as well as business use.

  1. How Is A Restaurant Lease Different From A Residential Lease?

A restaurant lease which is also known as a commercial lease is used by a tenant to rent space for a business while a residential lease is used by a tenant to rent a home or space to personally reside in. Commercial leases are typically viewed as contracts between knowledgeable business people.

  1. How Much Should A Restaurant Spend On Rent?

The industry’s collective experience shows that the lease cost should total no more than 5 to 8 percent of the restaurant’s total revenues. On that basis, a neighborhood restaurant with $800,000 in sales should expect to pay $40,000 to $64,000 a year.

  1. What Is A Healthy Rent To Sales Ratio?

For a tenant, the rent-to-sales ratio helps them decide if a location makes economic sense for their business. In retail, tenants aim for a rate below ten percent, ideally operating between a six to eight percent rent-to-sales.

  1. Is It Better To Lease Or Buy Restaurant Equipment?

It is always better to buy your own restaurant equipment as against leasing, but the truth is that if you have done your feasibility studies, and it won’t make any economic sense to buy restaurant equipment for the start, then you should opt for renting.

  1. What Is A Commercial Lease Assignment?

A commercial lease assignment happens when a tenant transfers all of the rights to a lease to someone else but remains liable for rent payments to the landlord.

  1. How Much Does It Cost To Lease A Kitchen?

The hourly rates to lease a kitchen typically ranges from $15-$30 an hour. This may not sound bad, however many monthly memberships or leases range from $300 to several thousand dollars, meaning it can be costly to rent a commercial kitchen for a singular event.

  1. How Much Does It Cost To Set Up A Small Commercial Kitchen?

The price of installing or building a small kitchen is between $15,000 and $100,000 but can go much higher depending on the menu and need.

  1. What Should Restaurant Rent Be As A Percentage Of Sales?

Restaurants are spending an average of 21 percent turnover on rent, up from 16 percent last year. This is already up from CDG’s forecast that operators will be paying an average of 20 percent of turnover in rent by 2021. Historically, 12 percent of turnover is the maximum businesses can afford.

  1. What Percentage Of Revenue Should The Lease Or Rent Be For A Small Cafe Style Food Business?

In most cases, the industry’s collective experience shows that the lease cost should total no more than 5 to 8 percent of the restaurant’s total revenues. If your rent amounts to more than 8 percent of your turnover you may have a millstone around your neck. Ideally, your rent should be about 5–6 percent. Rent plus marketing should not exceed 12 percent.

  1. Does A Commercial Lease Agreement Need To Be Notarized?

Generally, states require that commercial leases be signed by the party or parties to be charged. But when it comes to Notarization, some states, like Ohio, require that your commercial lease of three or more years not only be signed but must be notarized in order.

Joy Nwokoro