7 must-negotiate lease renewal points
Renegotiating your lease? Pay attention to these seven considerations before you sign.
If you don’t own the building in which your pizzeria is housed, there will come a time when you need to renegotiate your lease, which can be a stressful process for some business owners. You want to make sure that you’re getting the most from your current lease while also trying to keep your rates from increasing. Read on to learn my tips for a successful lease renegotiation.
1. Rental rate
Rents don’t have to naturally go up when you renew your commercial or retail space lease; in fact, it’s possible to get a rent reduction when you negotiate a lease renewal. Since most pizzeria tenants don’t want to move (they prefer to renew their leases), the process of negotiating a rent reduction can be challenging but financially well worth the effort. To negotiate a rent reduction, start the process early (thus allowing ample time for back-and-forth discussions with the landlord) and create competition for tenancy (by shopping around for other vacancies and collecting written offers from other landlords to use as leverage in negotiations).
2. Tenant allowance
Tenant allowance is inducement money paid by the landlord (normally to first-time tenants) to offset the cost of leasehold improvements to the premises—and the allowance normally is not paid back to the landlord. But so many tenants miss out on a tenant allowance when renewing because they don’t know it’s negotiable. If you need to do renovations (painting, reconstructing your kitchen, knocking down a wall to expand your dining area, etc.), then you can justify negotiating for a tenant allowance on your lease renewal.
3. Security deposit
If you gave the landlord a deposit on your first lease, maybe you should be getting that deposit back now. The deposit is worth negotiating. Remember, you may not be a security risk at all, especially after faithfully paying the rent for five or 10 years. Why should the landlord get to keep your deposit money, especially into the lease renewal term? Note that deposits are not legally mandatory.
4. Personal guarantees
Many pizzeria tenants give a personal guarantee when initially signing their commercial leases, but is this really necessary on lease renewals? Look at how much money you’ve already paid the landlord in rent. The truth is, the landlord no longer has any risk; he has been fully paid out over many years. The recession has hit the restaurant industry hard over recent years; many tenants without personal guarantees on their commercial leases were able to walk away to toss dough another day without going into personal bankruptcy.
5. Lease renewal options
If you plan to sell your pizzeria, you may want lease renewal option terms for three, five or even 10 years. For someone to pay you top dollar to buy your pizzeria, he usually wants the real estate or the location to be secure, and that means a long-term lease or lease renewal option clause. You can live without a renewal option clause, but it’s better to have one to three lease renewal option terms.
6. Percentage rent
Not all pizzeria tenants are paying percentage rent, defined as a formula for calculating an increase in rent above a preset sales volume (i.e., once sales exceed a certain volume, rent increases), but if you are, it can be negotiated by changing the percentage or the breakpoint. It’s not easy, but it’s worth trying if you are in the fortunate position of doing well in your business.
7. Signage, parking and miscellaneous
Properties change over time, and tenants discover things they should have negotiated when they signed the first lease. Available property signage and parking spots are just two examples; because this is finite, waiting could mean you lose out. And, when pizzeria tenants fail to secure exclusivity on the use clause, a new restaurant or convenience store on the same property could start selling pizzas or pizza by the slice. Don’t be shy about negotiating here; be proactive.