by Dominique MaddoxSeptember 14, 2021 Buying a Restaurant, Leasing a Restaurant0 comments

Commercial Lease Assignment: What should you know?

What should you know about a Commercial Lease Assignment before signing the lease? The lease assignment can be short and brief, but it has a tremendous impact on the capability of a restaurant owner selling a restaurant in the future.

When buying or selling a restaurant, it is essential to evaluate the strength or weakness of a commercial lease assignment language.

A restaurant owner that wants to sell a restaurant can easily be stopped by the language in their lease that covers the possibility of a lease assignment to a new tenant.

What should you know if you are negotiating a lease assignment language for a commercial lease? This blog presents a brief breakdown of some of the key points involved in a lease assignment.

When a tenant’s lease interest is assigned to a new tenant/buyer, this is called a lease assignment. The current tenant has already agreed to terms with the landlord; once the new tenant signs the lease assignment, they are now responsible for the lease terms. The landlord’s standard practice is to keep the previous tenant on the lease as a guarantor and add the new tenant.

Most negotiated leases will contain a provision requiring that landlord’s consent to an assignment is necessary, but such approval will not be unreasonably withheld. The tenant will likely also try to include the landlord’s obligation to not unreasonably delay or condition its consent, according to Attorney John G. Kelly.

Dallas Restaurant Broker Dominique Maddox says, “Selling a restaurant has multiple tasks/assignments that have to be completed before restaurant ownership is transferred. Practically every commercial lease will have detailed requirements for the assignment process.

Landlord approval for a lease assignment is a critical part of the selling process. The majority of restaurant owners are clueless about the provisions in their lease for a lease assignment”.

EATS Restaurant Brokers list language to know in a commercial lease regarding a lease assignment

Assignment Fee:

This fee is payable to the landlord before a tenant can transfer the rights to a commercial lease. The amount is usually not negotiated between landlord and tenant, most leases landlord input whatever number they want.

The assignment fees usually range from $0-$10,000 (listings for sale under $2 million); it really depends on the landlord and the language in the lease. The lease assignment fee majority of the time, is paid by the seller.

EATS Restaurant Brokers tip: Read the lease before signing and know how much the assignment fee will cost you.

Financial Qualifications:

Landlords have several different qualifying metrics a tenant should pass before getting approved for a lease. The lease assignment language should not be as strict as the current lease for a new tenant because the business is up and running, usually generating sales.

Depending on the landlord, EATS Restaurant Brokers has seen lease assignments that automatically approve a new tenant if they keep the lease space the same franchise brand. But also seen lease assignment language where the new tenant has to have as much or more liquid assets as the previous tenant. This can be an unreasonable requirement if the first tenant is financially well off when signing the original lease.

Renewal Option

The renewal option gives a tenant the right to extend a commercial lease expiring in the future. Lease options are usually extended by 3 years, 5 years, or 10 years.

Renewal options should have specific language on the conditions required for a tenant to extend an expiring lease. Many leases need a tenant to give 90-180 days’ written notice to confirm if the tenant plans to extend the lease.

Restaurant owners who are trying to sell a restaurant and lease are about to expire might think they will just have the new buyer sign the tenant.

If the window to provide a landlord with a written notice has expired, the landlord has the right to refuse to agree to a lease assignment.

EATS Restaurant Brokers Tip: The restaurant owner should know how far in advance written notice to extend the lease is required to the landlord.

For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com

by Dominique MaddoxMarch 2, 2021 Leasing a Restaurant0 comments

How do you write a letter of intent for a lease

How do you write a letter of intent for a lease is a struggle for inexperienced brokers representing clients or unrepresented potential tenants? Once a potential tenant finds a commercial lease space, the process to negotiate with the landlord begins.

A letter of intent (LOI) is a document declaring one party’s preliminary commitment to do business with another. The letter outlines the key points of a deal that will be negotiated between all parties involved.

LOIs are useful when two parties, usually landlord and potential tenant, work together to hammer out the broad strokes before resolving the finer points.

Letter of Intents can be drafted and presented by either party. The receiving party can accept the terms or redline and revise the words to send back to the original sender.

Key Points on a Letter of Intent Include:

Tenant Improvement Allowance (TI)
Rent Abatement
Personal Guaranty
Rent structure
Term of Lease
Options to extend
Permitted Use/Exclusive Use
Rent Commencement Date
Landlords Delivery Condition
Lease Assignment Rights
Security Deposit
Advanced Rent
Repairs and Maintenance
Brokerage Disclosure and Commission

Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “the letter of intent is an essential part for a potential tenant to address all concerning issues before signing a new lease.

Landlords pay lawyers to draft leases that protect all their concerns. In this business, I always say the landlord is not your friend. Potential tenants need to have a professional on your side when negotiating the lease”.

EATS Brokerssuggest hiring a professional Business Broker or Restaurant Broker to review the following items on a Letter of Intent (LOI):

Personal Guarantees- how long will the tenant be a personal guarantor.
Exclusivity-does the tenant have any protection from incoming tenants competing with their cuisine.
Covenants, POA rules, and regulations
Zoning issues
Subordination
SBA leases
Renewals- Provides information on renewals and rates.
Non-Disturbance
Dispute resolution

The detailed information to consider when evaluating a new lease can be overwhelming to an inexperienced restauranteur or real estate professional. Most landlords hire property management companies to negotiate new leases. These hired professionals’ job is to get the landlord the best deal possible.

To all potential tenants, remember when you call the “For Lease” sign on a vacant restaurant space, you are letting the landlord know you are representing yourself in lease negotiations.

For more information on restaurant leasing and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com.

Visit our website at www.EATSbroker.com

by Dominique MaddoxJuly 2, 2020 Buying a Restaurant, Leasing a Restaurant0 comments

3 Types of Buyers after Covid-19

EATS Broker talks to 3 Types of Buyers after the Covid-19 pandemic outbreak about buying a restaurant. The conversations we had before Covid-19 were much different than the conversations now. Today’s conversations come with a collection of unknown factors.

Today’s market is buzzing with a large number of buyers and sellers entering the market. Some want to become an entrepreneur while others want to sell a business. According to BizBuySell.com traffic has increased with Buyers and Sellers activity and now exceeds pre-Covid-19 levels. Traffic to the website was up 19% May 2020 compared to May 2019.

Dominique Maddox of EATS Restaurant Broker says, “ it’s a golden opportunity for savvy buyers in today’s market. Restaurants that were for sale at high valuation prices before Covid-19, now need to be reevaluated and the listing price lowered”.

3 Types of Buyers in today’s market after Covid-19:

Sit on the sideline– these buyers are pessimistic and believe that the worst will happen with the Covid pandemic. These buyers will sit on the sideline to watch and wait. They are waiting to see what emerges next. These buyers will look but will not move forward to purchase.
The Savvy Buyer– has the Entrepreneur Spirit these are the people looking to buy up businesses at some attractive prices. These are the buyers looking for value at a great price. We saw this in the real estate recession in 2009 and 2010 when prices were low, the savvy buyers were bullish and bought properties.
The recent unemployed buyer– according to CNBC the employment-population ratio of the number of employed people as a percentage of the U.S. adult population plunged to 52.8% in May. This news means 47.2% of Americans are jobless, according to Bureau of Labor Statistics. As the coronavirus-induced shutdowns tore through the labor market, the share of the population employed dropped sharply from a recent high of 61.2% in January.

With 42 million people out of job, some of those people will be looking to buy a business. These buyers have been furloughed from corporate jobs, or buyers wanting to use their 401K to purchase a business.

by Dominique MaddoxJune 26, 2020 Leasing a Restaurant, Restaurant news, Restaurants sold0 comments

Dominique Maddox of the EATS Broker Leases Fayetteville Space

Dominique Maddox of the EATS Broker leases vacant space. Mr. Everything Café will be opening in Banks Crossing Shopping Center in Fayetteville, GA. EATS Broker represented the franchisee during the transaction.

Mr. Everything Cafe has been serving great food since 1993, starting in the West End Atlanta Community. Mr. Everything Cafe has received national recognition with its recent appearance on the Today Show on 11/26/2019 featuring small businesses around the nation. Mr. Everything Café was chosen over thousands of restaurants to be featured on the show.

Mr. Everything is an innovative yet simple concept that focuses on Healthy Choice Rice dishes, subs and sandwiches, and low carb salads.

Dominique Maddox Founder and President of EATS Broker says, “this was a very difficult deal because we started negotiating before Covid-19 pandemic. The national shutdown delayed the closing and the landlord required various supporting financial documentation. Dominique believes tenants asking for Tenant Improvement (TI) for leases will be required to put much more money down as a security deposit than in the past.

The new Mr. Everything Café franchisee has worked in the Healthcare Industry for the past 15 years. She decided Fayetteville was the ideal city to open a Mr. Everything Café because Fayetteville ranks high in Most Diverse Suburbs in Georgia, and Most Diverse Places to Live in Georgia. This population mix has been the foundation of the success of Mr. Everything Café.

Mr. Everything has beginning franchising its brand. They currently have the 1st franchise location opened in Greenbriar Mall, 2nd location is located in Decatur, Fayetteville will be the 3rd franchise. Overall the franchise has 5 operating restaurants. Location should be open by September 2020.

by Dominique MaddoxJune 19, 2020 Buying a Restaurant, Leasing a Restaurant0 comments

Commercial Lease is it an Asset or Liability?

Your current commercial lease is it an Asset or Liability? Most Restaurant Owners find a restaurant for lease and sign a commercial lease before they open their restaurant unless they are buying the building. The sad truth is that a large number of restaurant owners never really read the lease they signed, don’t understand the lease, can’t find the lease, and have no clue about the effect the lease has on their chances of selling in the future.

Restaurant Owners across the nation have to decide if they should reopen and operate, close the doors for good, or try to sell. Restaurant Valuations are not only about sales and profits, but a big factor is also if the lease is an Asset or Liability.

Dominique Maddox Founder and President of EATS Broker says, “ My biggest headaches and heart burns have been with the lease approval or language in the lease, this affects how marketable a restaurant is to another buyer.” One of the biggest secrets in Commercial Real Estate is that the landlord is not your companion and the lease is written to benefit the landlord.

EATS Broker provides lease negotiations consulting to clients. Find some of the keys points we found in a recent lease we reviewed for a potential seller that was in the process of renewing the lease.

Radius-In the event that during the Lease Term either Tenant, or Tenant’s management, or any person or entity controlled by Tenant, or controlling tenant, or controlled by the same person or entity or persons entities who control Tenant, directly or indirectly, owns, operates, is employed in, directs or serve any other place of business, which is (i) the same, or similar to, or competitive with, Tenant’s business as set forth herein, (ii) with a radius of five (5) mile from the outside boundary of the shopping center.

EATS Restaurant Brokers recommendation: Change the radius to 1 mile, this will allow you to open another restaurant in the future within 2-5 miles from your current location.

Assignment or Subletting-Tenant shall pay an “Assignment Administrative Fee” of $5,000 and shall not have to reimburse the Landlord for all out-of-pocket expenses.

EATS Restaurant Brokers recommendation: Reduce fee to $1,000 because if you have a buyer for your location you would have to pay the landlord $5,000 for a lease assignment when 75%-80% of landlords do lease assignments for free

Relocation of the Demised Premises- If Landlord determines that it is necessary or desirable that Tenant vacate the Demised Premises or that the Demised Premises be altered, Landlord may require that Tenant surrender possessions of the Demised Premises to the landlord, in its sole and absolute discretion.

EATS Restaurant Brokers recommendation- Language needs to be removed from the lease. The landlord has the option to uproot you and relocate you without your permission.

Exclusive use: Landlord will not lease space in the Shopping Center to a tenant (herein “Competing Use”) whose primary use shall be the sale of fresh-squeezed juices and smoothies(herein “Competing Use”). For purposes of this provision, use is primary when more than fifty percent (50%) of such tenant’s Gross Sales are derived from the Competing Use.

EATS Restaurant Brokers recommendation: Your current lease does not protect you from another concept opening up in the same shopping center with gross sales of up to 49% for Fresh squeezed juices and smoothies. Request exclusive on Fresh squeezed juices and smoothies or other businesses cannot have more than 10% of the tenant’s gross sales.

by Dominique MaddoxJanuary 21, 2020 Buying a Restaurant, Leasing a Restaurant0 comments

3 Tips for Leasing a Restaurant Space– EATS Broker

3 Tips for Leasing a Restaurant Space

Restaurant leases can be complex and involve negotiations on some very important details to a lease. In general, restaurant commercial leases are generally much longer than a typical residential lease. The restaurant tenant is making a much larger financial commitment.

Regardless of whether you are an experienced restaurateur, franchise concept, or up-and-coming restaurateur, carefully review and consider the lease terms, and the language in the lease.

Even with the difficulty of negotiating lease terms, some restaurateurs try to negotiate with the landlord by themselves without professional representation. This practice sometimes leads to restaurant tenants signing lease agreements they fully don’t understand.

Leasing a restaurant can be a fairly straightforward process if you understand the steps required and seek help from a professional such as restaurant real estate advisors, attorney, contractors, and architects if you have questions. Finding a restaurant space can be the easy part, negotiating the lease terms can be the difficult part.

EATS Restaurant Brokers 3 Tips for Leasing a Restaurant Space

Don’t Call that For Lease Sign

Unless you have experience in negotiating multiple commercial real estate leasing contracts, don’t call that For Lease Sign without contacting a trained Restaurant Broker. The individual who is advertising the commercial real estate space is a trained professional in contract negotiations representing the landlord’s best interest. Once you have called the For Lease Sign directly, you are letting the leasing agent know that you are representing yourself in negotiations.

Why is this important? Once the landlord’s representative starts negotiating with you and sends you a Letter of Intent and then you contact a Restaurant Broker to represent you it’s too late. The landlord will not pay your professional representative a commission and you will be responsible. This will be a personal expense you will incur and have to decide if you want to pay.

Most people don’t know the landlord pays the leasing company usually a 6% commission to lease the space. This commission is usually split between a tenant representative and a landlord representative in a co-op deal.

Be prepared with your documentation

Today’s leasing agents want to know they are working with a quailed tenant before they open the doors to show the space or start negotiating on a lease. The worst feeling as a potential restaurant tenant is to find the ideal and perfect space but you are not ready to move forward. Before you start your restaurant search, you should have the following items ready to present to the landlord if needed.

Business Plan with 3 years forecast
Copy of Menu
Resume or Bio
Proof of liquid assets-Bank Statement, 401K statement, or letter from your bank
Personal Financial Statement
Copy of Tax Returns

Prepare Letter of Intent

The first step of the lease negotiation is the offer to lease, typically referred to as the Letter of Intent (LOI). The Letter of Intent is to facilitate the start of negotiations between the tenant and the landlord. The complexity of the Letter of Intent depends on the person drafting the form, the tenant’s demands, and the landlord’s willingness to negotiate. This documentation should cover the majority of the key points to the lease:

Rent structure
Term of Lease
Options to extend
Permitted Use/Exclusive Use
Rent Commencement Date
Landlords Delivery Condition
Lease Assignment Rights
Tenant Improvement Allowance (TI)
Rent Abatement
Personal Guaranty

For more information on restaurant leasing and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com

by Dominique MaddoxOctober 25, 2019 Leasing a Restaurant, Selling a Restaurant0 comments

5 Things Sellers should consider with the lease assignment

5 Things Sellers should consider with the lease assignment:

The best day of a Restaurant owner’s life in the business world is usually when they first open the doors to their restaurant! The Restaurant Industry can be a tough business and the second-best day for a Restaurant Owner is usually when they sell the restaurant. When it’s time to sell, the business owner will prepare docs to provide to a potential buyer and review the lease signed with the landlord.

Most Restaurant owners have to dusk off the original lease and review what obligations they have to the landlord, some don’t have a copy of the lease at all. A commercial lease can range from 1-90 pages or longer and contain some very specific language that can make it challenging for lease assignment approval.

Here are the top 5 issues a Restaurant Broker will find in a lease:

The Personal Guarantee:

Landlords want a blanket guarantee over the entire term of the lease, even if the seller completes a sale with a buyer. Someone buying or selling a restaurant should fully understand their obligations when it comes to a personal guarantee, and the financial obligations that come with the agreement. This clause allows the landlord to come after the original tenant’s personal assets long after they have sold their business if the current tenant defaults on the monthly rent. This is very important to negotiate upfront with the landlord so no surprises will come up when it’s time to sell.

Consent to Transfer:

As a restaurant broker interacting with landlords every single day on lease assignments, this clause can be very misleading. Landlords will write the vague language in the lease usually like “Shall not unreasonably withhold” or “Shall not unreasonably withhold” or “Same net worth as current”. This gives the landlord total control of who they will approve for the lease assignment. The lease needs to have specific, measured steps with a timeline in the event you ever transfer the store when leasing a restaurant.

Assignment Fee:

Landlords usually will have a legal team prepare the original lease and put protect themselves from future expenses of creating a lease assignment by adding an Assignment Fee. This is one of the biggest item sellers will overlook when reviewing a lease. This becomes a big issue when it’s time to sell and the landlord is asking for $5000 from the seller to have the right to assign the lease. Assignment fees range from $0-$10,000, negotiate this fee upfront before you sign the lease because you have the most leverage at that time.

Option Terms with no agreed rent amount:

The landlord is not your friend when it comes to your monthly rent amount and yearly increases. The landlord is looking out for only one person in the transaction. He/she wants to improve their checkbook, and the bottom line and his earnings. The tenant should protect themselves from future increases by having the numbers agreed upon upfront, the national average for yearly rent increases is 3%-5%, but tenants cannot assume a landlord will not increase rates by more

Security Deposit:

The security deposit is usually required from landlords and can be the amount for 1-3x times monthly rent. When it’s time to sell the restaurant, what happens to this security deposit? Tenant’s should get confirmation upfront on how their security deposit will be returned if a lease assignment is approved.

When it’s come to landlords, remember it’s business and not personal and protect yourself. Use what you learned to get the best deal possible for a leasing assignment or a new lease for a restaurant. If you need help, contact EATS Broker to help you negotiate a deal.