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. Youwant to make sure that you’re getting the most from your currentlease 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 commercialor retail space lease; in fact, it’s possible to get a rentreduction when you negotiate a lease renewal. Since most pizzeriatenants don’t want to move (they prefer to renew theirleases), the process of negotiating a rent reduction can be challengingbut financially well worth the effort. To negotiate a rentreduction, start the process early (thus allowing ample time forback-and-forth discussions with the landlord) and create competitionfor tenancy (by shopping around for other vacanciesand collecting written offers from other landlords to use as leveragein negotiations).
2. Tenant allowance
Tenant allowance is inducement money paid by the landlord(normally to first-time tenants) to offset the cost of leaseholdimprovements to the premises—and the allowance normally isnot paid back to the landlord. But so many tenants miss outon a tenant allowance when renewing because they don’t knowit’s negotiable. If you need to do renovations (painting, reconstructingyour kitchen, knocking down a wall to expand yourdining area, etc.), then you can justify negotiating for a tenantallowance on your lease renewal.
3. Security deposit
If you gave the landlord a deposit on your first lease, maybe youshould be getting that deposit back now. The deposit is worthnegotiating. 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,especiallyinto the lease renewal term? Note that deposits are notlegally mandatory.
4. Personal guarantees
Many pizzeria tenants give a personal guarantee when initiallysigning their commercial leases, but is this really necessary onlease renewals? Look at how much money you’ve already paidthe landlord in rent. The truth is, the landlord no longer has anyrisk; he has been fully paid out over many years. The recessionhas hit the restaurant industry hard over recent years; manytenants without personal guarantees on their commercial leaseswere able to walk away to toss dough another day without goinginto personal bankruptcy.
5. Lease renewal options
If you plan to sell your pizzeria, you may want lease renewaloption terms for three, five or even 10 years. For someoneto pay you top dollar to buy your pizzeria, he usually wantsthe real estate or the location to be secure, and that means along-term lease or lease renewal option clause. You can livewithout a renewal option clause, but it’s better to have one tothree lease renewal option terms.
6. Percentage rent
Not all pizzeria tenants are paying percentage rent, defined as aformula for calculating an increase in rent above a preset salesvolume (i.e., once sales exceed a certain volume, rent increases),but if you are, it can be negotiated by changing the percentageor the breakpoint. It’s not easy, but it’s worth trying if you are inthe fortunate position of doing well in your business.
7. Signage, parking and miscellaneous
Properties change over time, and tenants discover things theyshould have negotiated when they signed the first lease. Availableproperty 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 propertycould start selling pizzas or pizza by the slice. Don’t be shy aboutnegotiating here; be proactive.