For many owners, negotiating a restaurant lease is extremely challenging. Tenants may go through the leasing process once or twice in their entire lifetime, yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. In addition, the agent or broker is largely commission-driven; he will earn a paycheck for each tenant signed.
Whether you’re negotiating a lease renewal or leasing a new location for the first time for your pizzeria, here are some tips for tenants:
Negotiate to win. All too frequently, tenants enter into lease negotiations unprepared and don’t even try winning the negotiations. If you don’t negotiate to win, you won’t. With big commissions at stake, you can be sure the landlord’s agent, on the other end, is negotiating fiercely to win. Tenants should remember that it is okay to negotiate aggressively.
Be prepared to walk away. Try to set aside your emotions and make objective decisions when negotiating a restaurant lease. Whoever most needs to make a lease deal will give up the most concessions. A good pizzeria in a poor location will become a poor business.
Ask the right questions. Gathering information about what other tenants are paying for rent or what incentives they received will position you to get a better deal. Ask the right questions. Remember that your potential landlord and his agent know what every other tenant in the property is paying in rent, so you must do your homework, too.
Brokers: friend or foe? Real estate agents and brokers typically work for the landlord who is paying their commission. It’s not normally the agent’s role to get the tenant the best deal; it is his job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more commission the agent earns. If you’re researching multiple properties, try to deal directly with the listing agent for each property rather than letting one agent show you around or show you another agent’s listing. Your tenancy is more desirable to the listing agent if he can avoid splitting commission with other agents.
Never accept the first offer. Even if the first offer seems reasonable or you have no idea of what to negotiate for, never accept the leasing agent’s first offer. When you’re negotiating a restaurant lease, the landlord fully expects you to counteroffer (even repeatedly).
Ask for more than you want. If you want three months of free rent, then ask (negotiate) for five months. No one ever gets more than they ask for. Be prepared for the landlord to counteroffer and negotiate with you as well. Don’t be afraid of hearing “no” from the landlord; counteroffers are all part of the game.
Negotiate the deposit. Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable, and more so than anything else, they often serve to compensate the landlord for the real estate commission he will pay out to the realtor! If you’re negotiating a lease renewal and your landlord is already holding a deposit of yours, negotiate to get that deposit back.
Measure your space. When negotiating a restaurant lease, tenants frequently end up paying for phantom space. Although they’re paying their rent per square foot, they often don’t receive as much space as the lease agreement says.
Negotiate, negotiate, negotiate. The restaurant leasing process is just that—a process, not an event. The more time you have to put the deal together and make counteroffers, the better your chance of getting what you really want. Too often, tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time.
Educate yourself and get help. Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a webinar will make a difference. And don’t forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake, plus personal guarantees and other risks, you can’t afford to gamble. In leasing, pizzeria tenants don’t get what they deserve; they get what they negotiate.
This article originally appeared in the January-February 2011 issue of PMQ Pizza Magazine.