How to Negotiate a Restaurant Lease

When you’re opening a restaurant, finding the right location is a lot of work, but it’s crucial to your success, growth, and notoriety. Once you’ve picked your spot, you’ll want to know how to negotiate a restaurant lease to see if you have any wiggle room on fees. Negotiating your restaurant lease is both a question of being cost-conscious, but also getting yourself in the best situation to succeed. That’s especially true since your rent is a fixed cost, and once you sign your lease, you’re locked into certain overhead that you’ll be responsible for each month.

We’ll get into specific tips for how to negotiate a restaurant lease, as well as several important factors to understand leading up to the talks, such as finding the space, understanding important details about it, and figuring out how it fits into your budget. We’ll go through all of this and share tips so you can know how to negotiate a restaurant lease with the big picture in mind.

How to Negotiate a Restaurant Lease: 4 Tips and Tricks

Once you’ve found your perfect space and are close to signing the paperwork, consider using these tactics to negotiate your restaurant lease so you’re paying the most favorable terms possible.

Do Your Research

As with any negotiation, you want to come to the table having done your research so you can make your case for lower rent. When negotiating a restaurant lease, first do your market research. Find out what similar buildings with comparable amenities in like neighborhoods are renting for. If that number is lower than what your potential landlord is asking, you have a good case for why they should lower it.

Next, find out how long the space has been vacant for and also use that to your advantage. A landlord might be so hungry to get a tenant that they’ll lease the space for less than asking rather than risk it sitting empty and making no money for who knows how long. 

Ask for Flexibility

Once you’ve completed your research, the next step is simply to ask for lower rent. You can also ask for a few different types of lease setups, such as delaying payment until your restaurant has opened, asking for more favorable terms in the first year, or a free month or two.  

You can also ask the landlord to pay for any repairs that need to be made. If your landlord does agree to repairs, you’ll want to lay these out in a landlord work letter to make sure both parties are on the same page and to help ensure the work gets done. 

The worst thing that’ll happen is that your landlord will say no to your requests, but, on the other hand, you could end up with a better contract.

Seek Favorable Terms and Inclusions

When you’re negotiating the length of the lease, you’ll want to get a sense of whether you can lock in a lower rent if you lease for a longer period of time. Obviously, you don’t want to lock yourself into a very long lease if you’re a super-new restaurant since you’ll have to pay fees if you need to get out of it early. But asking about longer lease terms could show your commitment to the space and put your landlord at ease.

You can also ask for certain inclusions: paying garbage-collection fees, updating HVAC or plumbing, or grace periods on payments.

Show Your Business Plan and Track Record

If you’re a first-time restaurant owner, you could have a harder time negotiating your restaurant lease. It’s important for a landlord to view you as a reliable renter—just like if you were applying for a loan at a bank, you want to show that you can pay what you owe. Your landlord wants to be sure that you’ll pay your rent on time and that they won’t have to restart the tenant search in a few months.

Consider showing the landlord your restaurant business plan to give them confidence that you’ll succeed. Or, if you have a track record of doing well in business—whether as a restaurateur or otherwise—make sure you’re presenting this, too. You might even want to include any information on your investors or advisors that could convince the landlord that you’re going to be a good bet as a tenant.

If you’ve rented other commercial space, it can also help to present reference letters from previous landlords that confirm you were a good tenant who paid rent on time, was courteous, followed the rules, etc.

Finding Your Perfect Restaurant Rental Space

Beyond the tips for negotiating your restaurant lease, it’s also helpful to know some crucial factors about selecting that space in the first place. Here are a few important considerations to have before you move forward into talks.

Know What to Look For

You should go into your search for a restaurant rental space with key factors in mind. These include the size of the space, potential foot traffic, neighborhood, neighboring restaurants, parking, and more. You should also know how much you’re willing to renovate, and what will be must-haves in the renovation. Don’t forget to get an estimate for updates specific to each space you’re considering.

Some spaces are zoned in specific ways that may not be advantageous to the kind of restaurant you want to run; others just won’t logistically work for the type of establishment you’re looking to set up. Make sure you look into zoning, and talk to experts before moving ahead with any particular space.

Consider Second-Generation Spaces

Doing a full build-out of a restaurant can cost a lot of money—in some cases, more than you expect. If that sounds intimidating, or you’re on an extremely tight budget, you might want to look into “second-generation” spaces, which means spaces that previously housed restaurants or similar food-services businesses.^[1] They’ll often have hookups that you need, a kitchen layout already created, and more. They may also already have permits in place to be a food establishment, which can save you money and time.

Consider Licenses

As we touched on above, the zoning for your restaurant can make a big impact on your business. For instance, restaurants that are very close to schools might not be able to get a liquor license. When you are making your business plan, be sure to note exactly what kind of business licensing you’ll need, and then bring this up while you’re reviewing the details of the space.

Don’t Forget Your Layout

There are two layouts that will make or break you: the layout of the dining room and the kitchen. The flow in both will determine comfort and efficiency.

For the dining room, evaluate the space based on flow and how many tables you’ll be able to easily serve. Diners have to be comfortable, too, so consider the spacing between tables, and make sure that there are enough for what you’re planning on.

In the kitchen, you’ll want to make sure there is enough space (and that it can be used in a variety of ways) to make sure that your chefs can cook and deliver dishes to waitstaff without everyone being in each other’s way. Don’t forget storage: Make sure that you have enough space to put up racks or add carts on top of having designated space for your equipment.

This is where bringing your architect and general contractor directly into the space can be absolutely crucial. You might not be viewing the space the way they do, which could change your mind on a rental space or simply make it better than you imagined.

Look Into the Landlord

A key part of negotiating a restaurant lease as well as securing a space that’s right for you is getting a good sense of who the landlord is. There are websites where you can look up information on landlords, take a look at how much property they own, and more. If you really want to get granular, you can ask current tenants of the building what their experiences have been.

On top of this, don’t ignore your gut. If you have a conversation with the landlord and feel as though he or she might not be flexible, or aren’t interested in the plans you have, it could be a red flag. That’s when asking around can be hugely helpful to make a decision.

Know What a Restaurant Rental Space Will Cost You

The cost of a space and your budget are among the biggest considerations you’ll have. Make sure you get very intimate with your budget (enlist an accountant if you’d like) to be certain you can afford the monthly rent with the revenue that you’re projecting—especially in a worst-case scenario.

Remember that rent is a fixed cost, so no matter how much you’re making, you’re still going to have to pay the same amount. Rent that is too high will obviously be a problem—but even rent that’s a stretch could be costly if you don’t do as well as you expect.

The Bottom Line

There are many tips and tricks you can use to help you secure favorable terms on a lease, so consider all of them as you make the pitch to your landlord. 

One very important final thing to note: Be sure that your general contractor, architect, and attorney are all involved in the process of agreeing on a space and securing the deal. Carefully review every part of your lease—especially the Delivery of Premises section—so you know exactly what you’re getting into, and the kind of space you’ll be using. You don’t want to run into any surprises or have to end up investing more than you expected to.

You’ll absolutely want to have a lawyer look at the contract, as well, to explain the finer details to you and answer any questions you have. Don’t be shy about those questions; it’s better to know everything now than put yourself in a bind later. There are no stupid questions, especially when there’s so much money on the line. 

Article Sources:

1. ModernRestaurantManagement.com. “Why Second-Generation Real Estate is Becoming First Pick“