How does Covid-19 affect Restaurant Valuations?
Everybody has a unique story about how the coronavirus crisis has affected their lives. During my alone time I have thought about how does Covid-19 affect Restaurant Valuations moving forward?
My personal story as a Restaurant Broker is that I was scheduled to close my 1st deal with my brokerage EATS Restaurant Brokers in March and the deal got canceled. The buyer was worried about the uncertainly of the future regulations for the restaurant industry.
My experience of eight years as a Restaurant Broker has prepared me for the “new normal” in the restaurant industry. The biggest concern I hear from my current clients is, “how much is my restaurant worth now after Covid-19 pandemic”?
While most restaurants struggle to open the doors back up for business, others apply for the Paycheck Protection Program (PPP) to help with expenses. Regarding Restaurant Brokerage one of the biggest questions not being talked about is, what happens to the restaurants that were listed for sale before the Covid-19 pandemic?
My personal experience is that I was able to save my deal that was canceled but my seller client had to reduce the asking price by 40% to keep the buyer interested. Now the deal is scheduled to close in June. If you are asking yourself why the price reduction, the restaurant industry has changed in the last 60 days, uncertainly will drive restaurant prices moving forward.
How does a Restaurant Broker recommend a price valuation for a restaurant?
1. EBITDA: An acronym, EBITDA stands for earnings before interest, taxes, depreciation, and amortization, and is a useful metric for understanding a business’s ability to generate cash Add Backs flow for its owners and for judging a company’s operating performance.
2. Replacement Cost Method
The restaurant advertised as an Asset Sale is valued using the Replacement Cost Method. The replacement cost method assumes a buyer pays the seller in order to benefit from the existing investment in the restaurant facility, lease, leasehold improvements, location of the restaurant, and equipment. This helps the buyer avoid spending time and money to build and comply with city regulations, and delays in building a new restaurant.
Due to the Covid-19 pandemic, some restaurants that were priced as profitable restaurants will be sold as an Asset Sale. The remaining profitable restaurants listed for sale should be ready to lower the asking price.
Restaurant valuations are based on 2019 sales numbers and 2020 sales projections. Banks will require quarterly 2020 profit and loss statements for bank lending approval. Based on national sales reports, most restaurant owners have seen a 70%-80% sales loss in March-April. Today’s buyers are more worried about how sales will increase moving forward much more than previous profit and loss statements.
For restaurant buyers seeking restaurant ownership buying an existing restaurant that is being sold as an Asset Sale is a quick path to Restaurant Ownership. The previous seller has done the hard work of building out the restaurant, dealing with contractors, getting the permits, negotiating terms on the lease, and establishing the location as a restaurant. Now it is time to bring your experience, ideas, menu, leadership skills and buy a restaurant that is priced pennies on the dollar.
My advice to restaurant owners looking to sell a restaurant or currently listed for sale:
-Be flexible with your asking price and be ready to negotiate.
-Re-evaluate your listing price after your restaurant is listed for sale a couple of months.
-Be realistic about the “new normal” in the restaurant industry
-Offer owner financing to a financially qualified buyer
-Listing with equipment liquidation company is a terrible idea- you will get pennies on the dollar for used equipment.
-Use a professional trained Restaurant Broker
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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What Should Your Business Broker know about your business?
If you’ve reached the point where you’d like to sell your business, odds are you’ll want to engage a business broker to help you through the process. The relationship between a Business Broker and seller is a key element to getting a business or restaurant sold. As a seller, a broker can help you streamline everything from pricing your business to marketing it to buyers.
The relationship between a seller and a Business Broker should be honest and open, with ALL negative information provided to the Broker upfront. Founder of EATS Restaurant Brokers Dominique Maddox says, “the worst feeling is to have a seller not disclose negative information on the listing and you find out later in the process”.
The act of withholding information from a Business Broker can decrease the chances of a business getting sold. Business Brokers are consultants with a job of keeping a deal together, this becomes increasingly difficult if they don’t have all the details of the business.
EATS Restaurant Brokers provides 3 things a Business Broker should know about your business.
Do the tax returns match the copy the IRS has on file?
When a buyer goes to a bank and provides Tax Returns provided by the seller, the bank will request tax returns directly from the IRS to confirm they match. Form 4506-T is an Internal Revenue Service (IRS) document that is used to retrieve past tax transcripts that are on file with the IRS. The document must be signed and dated by the taxpayer, thus giving third-party permission to retrieve the taxpayer’s data.
This is extremely important because if a seller has provided false tax returns or filed an amendment on his/her tax returns the Broker needs to know this information. Yes, as a Restaurant Broker I’ve had sellers provide false tax returns to a buyer and it was uncovered once the form 4506-T was signed.
Do you own the equipment?
Landlord these days when a tenant defaults on the rent they will evict the tenant and keep the equipment. This process makes it’s easier to lease the space to a new tenant. Savvy buyers can get a fully equipped restaurant to lease to convert to a new concept. This works well when you are opening but when it’s time to sell, what do you have to sellAn experienced Business Broker will have a seller provide an asset list to include only items owned by the seller. This makes a big difference in the potential list price. I’ve experienced sellers trying to sell a restaurant, but they don’t own the equipment, these deals rarely close.
UCC liens on the business?
UCC filing, also known as a UCC lien or a UCC-1, is a financing statement that lenders can file against your business with your secretary of state. ). This form is filed in order to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority
Liens can be placed on business equipment, a vehicle, property, or even a blanket lien naming all your assets. Most Purchase Agreements will have language that a business or restaurant has to be free and clear of UCC liens before a sell can happen.
If a seller doesn’t want to tell a Business Broker about a UCC lien it will come up once the closing attorney does a lien search. Talking upfront about these issues with your Business Broker about your UCC lien situation can help the sale of the business. Your Broker should be able to help you through each situation, but they must know first before they can help.
The trust relationship between a Seller and Business Broker can be the difference between a business selling or not. Nobody hates surprises more than a Business Broker when they think they know all the details about a business they are trying to sell. Your Business Broker is like your lawyer, they need all the details before they can successfully represent you. The best piece of advice is to Disclose, Disclose, Disclose!
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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3 differences between Business vs Real Estate Brokerage
Most would agree when it’s time for you to buy a home you look for a real estate broker. When you are considering to sell or buy a business, with or without real estate attached, you look for a business broker or if you are selling or buying a restaurant find a Restaurant Broker. Both transactions require the transfer of assets but the difference in the closing process, forms, skill sets, time investment, county regulations, licenses required, and involved professional parties are enormous.
Dominique Maddox, an experienced Restaurant Broker of 8 years and former Realtor for 2 years, identified 3 differences between Business vs Real Estate Brokerage. A brief review here will help you, whether you are considering buying or selling a business, to understand the differences.
EATS Restaurant Brokers provides 3 differences between Business vs Real Estate Brokerage
1st Coming up with a Listing Price-
Residential Real Estate professionals have comparable sales information provided on various websites to use as information. Business Brokerage sales usually remain confidential and the general public does not know the sales price. A Real Estate Broker can choose comparable properties to come up with a listing price. Business Brokers have access to data regarding comparable sales, however with the data, coming up with a sales price can be confusing.
Find below EATS Restaurant Brokers methods to price a restaurant:
Asset-Based Approach
The buyer pays the seller an amount based on the opportunity to benefit from the existing business and build-out. Most Asset Sales are restaurants that show little profit or not profitable, open for less than 3 years, or books and records are not clean. This is also known as the replacement method and only accounts for equipment and items buyer can remove once they leave space and goodwill. Walk-in cooler, hood systems, and any fixture remain the landlords. This method seller gets pennies on the dollar for equipment and initial build-out cost.
Income Approach
This approach determines an expected level of cash flow for the business using a restaurant’s record of past earnings. This approach will require the seller to provide Profit and Loss statements, tax returns once under contract with a buyer, and sometimes sales tax filings. This method helps the buyer understand the Earnings before interest, tax, depreciation, and amortization (EBITDA) which is a measure of a company’s operating performance. This method is preferred by bank lenders to qualify a business for lending and nets the highest sales price.
Gross Revenue Approach
This method is the most uninvolved that solely relies on a percentage of annual gross sales to determine the value and is not accepted by bank lenders. Restaurants usually will use a 15%-30% of gross sales to arrive at a listing price. The gross revenue method is not a reliable indicator of the value of a restaurant. This is because revenue does not mean profit; likewise, an increase in revenue does not necessarily translate into an increase in profits.
2nd Confidentiality– Real Estate Agents use multiple forms of advertising from individualized web pages, large signs in front of the property, social media marketing, video tours, displays in magazines and newspapers to get the word out. They host broker tours and open houses to invite the public to view the property, everything to get the word out. Business Brokers understand providing the client’s information to the general public could cause harm to the business. They use specialized business brokerage sites, and pre-approved buyer’s ability to purchase before providing a business name. Business Brokers protect the seller’s privacy by requiring an executed Non-disclosure Agreement (NDA) also called a Confidentiality Agreement (CA) before providing the name of the business for sale. EATS Restaurant Brokers require a Bank Statement, 401K statement, or letter from banker before providing financials on most listings.
3rd Agency– In most real estate transactions, different brokers will represent the buyer and seller even if both brokers are members of the same firm. Brokerages will usually teach Real Estate Agents not to represent both parties. This is a BIG difference in Business Brokerage, in fact, most Non-disclosure Agreement (NDA) also called a Confidentiality Agreement (CA) has dual agency language written. This means the Business Broker is acting as an intermediary, negotiating with both the seller and the buyer to create a satisfactory deal for both parties. Real Estate transactions can be handled with standard contracts. There are no standard contracts for business purchases, and the final agreement can look much different than the initial offer.
Getting the keys to a new home or business can be exciting, just remember they are two different processes. Make sure you have the right expert to get the job done!
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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What is the best time to sell a restaurant?
Timing is defined as the choice, judgment, or control of when something should be done. Most Realtors would tell you the best time to sell a house at its highest price point would be May-August. What is the best time to sell a restaurant? EATS Restaurant Brokers would tell you January is the best time to sell a Restaurant!
The months of November-December are the slowest months for restaurant resales. Buyers are spending more time with their families, wrapping up year-end items, and not worried about buying a restaurant. The number of buyers inquires decline on restaurant listings for sale and spike back during the months of January-April.
Once the New Year arrives the Restaurant Buying Season begins and it’s a beauty contest. The number of listings increase and buyers have more inventory to choose from. Restaurant owners should keep one thing in mind. It takes time to sell a restaurant. It typically takes 6 to 9 months to sell a restaurant, but for planning purposes, you should plan for a year.
Fierce competition with the number of restaurants for sales on the market makes the restaurant listing package extremely important. The decisions Restaurant Owners make in January can have a big factor in if the restaurant sells or fails in selling in 2020.
EATS Restaurant Brokers provide 3 Tips for Selling Your Restaurant in January
1.Tax Return numbers are important when selling a restaurant:
Restaurant owners can deduct legitimate restaurant expenses against the revenues they take in. Restaurants, however, have some unique expenses that they can deduct against their taxable income. The most common deductions include food costs, server and kitchen labor, operating and advertising expenses, and capital expenses.
I have seen some very interesting deductions that are not restaurant-related. The most-odd deductions have been $10,000 Hawaii Trip for Restaurant research, luxury car for marketing, food cost for a personal family reunion, and private school tuition for kids.
These expenses save the Restaurant Owner liabilities on taxes owed but devalue the business for resale. The first line item most buyer looks for when reviewing a Tax Return or Profit and Loss statement is the Net Income. Writing off non-restaurant expenses on the restaurant’s books and records actually hurt the chances of the restaurant selling.
Restaurant Brokers Tip: Pay the IRS upfront on total sales with limited deductions, to increase your chance of selling on the back end for maximum profits. Consult your CPA or Tax Professional on ways to increase your chances of selling your restaurant.
January is the perfect month to list a restaurant because you haven’t completed your tax returns for the previous year. This is a great time to review your past tax returns with a Restaurant resale specialist for a valuation. This strategy can help you talk with your CPA or Tax Professional on how to file your upcoming tax return. The difference of writing off $10,000-$50,000 of unnecessary expenses, could cost you $30,000-$150,000 on resale value using a 3x multiple.
2.Use a trained Restaurant Broker
When someone gets sued usually the first task, they accomplish is to hire a lawyer to represent them legally, explain the court process, and to be a consultant. Lawyers will usually charge a retainer fee or consulting fee to address your concerns. Why do people hire a lawyer and not represent themselves in court? The obvious answer is that lawyers are trained in law and the general public is not.
One of the most common statements in Restaurant Brokerage is that operating a restaurant is much different from selling one! Restaurant Brokers are trained in real estate and business brokerage professionals. Restaurant Brokerage professionals are specialists in the field of restaurant resales and restaurant consulting.
The best part of hiring a Restaurant Broker is no upfront fees in most cases. EATS Restaurant Brokers only earn a success fee when the restaurant is sold. We know how to locate the buyers in the market and understand the restaurant resale process.
3.Clean up the restaurant and books and records
January is a perfect time for restaurant owners to focus on any tax liabilities, suspended licenses, lawsuits, claims, UCC liens, or landlord default payments owed. All this information is important to know and to be working on before your restaurant is listed for sale. The closing attorney does a UCC lien on the restaurant equipment and will require a sales tax clearance letter from the seller to conduct a closing.
Cleaning a restaurant and fixing broken equipment could make the difference to a buyer with so many restaurants for sale on the market. The primary factor of what a restaurant will sell for is determined by its earnings, or owner’s cash flow, and the market multiple. Using these tips can help a restaurant owner sell in 2020.
January-April is the restaurant buying season if you are a restaurant owner who wants to sell this year, you should be listed on the market now. Restaurant sales decline in the summer when the home buying season is hot.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Should I Sell my Restaurant?
Every Restaurant Owner has asked the question to themselves, “Should I Sell My Restaurant” at one time or another. It takes a certain person and mindset to want to own a restaurant, and an even smaller set of people have an exit strategy to sell a restaurant when the time is needed.
Restaurant Ownership is a very rewarding experience but can also become a negative burden quickly. The Restaurant business can require an owner/operator to work 10-12 hours a day, work 5-7 days a week, and miss out on spending valuable family time with loved ones.
60% of restaurants will close within 3 years and 80% will close within 5 years. To better understand why restaurants, sell or close at a rapid pace, you must understand what it takes to operate a successful Restaurant business. Some restaurant owners check out mentally from operating the day-to-day operations once their restaurant ownership dream starts to crumble. There are times when selling a restaurant is the best option for an owner. Here is a list of situations:
Health Issues– Operating a restaurant can be very stressful and lead to multiple health problems. Stress can lead to Restaurant Owners experiencing low energy, headaches, chest pain, rapid heartbeat, and insomnia. Stress that’s left unchecked can contribute to many health problems, such as high blood pressure, heart disease, obesity, and diabetes.
Burnout- This is the #1 reason, according to industry experts, why owners consider selling their business. The normal 10-12 hour workdays can take a mental and physical toll on the body. The required working conditions can take out the excitement of restaurant ownership from most owners. The pressure to increase sales or stop sales from declining can be a mental drain that leaves owners with limited motivation.
Partner Disputes– Partnership disputes happen often and usually force the sale or closure of a restaurant. Most partnerships have a written agreement of each party’s responsibilities, and financial responsibilities. Partnerships come in all shapes and sizes, intending to protect all parties. The majority of partnerships involve an operations partner and financial backing partner. Once partners are not on the same page regarding the direction of the restaurant, it’s time to sell.
Financial Reason– Liquidating the business can often relieve restaurant owners of the debt, other financial burdens, or cash out for financial gain. Many restaurant owners have much of their net worth invested in their restaurant. They have dedicated years of blood, sweat, and tears to build up the business and now it’s time to cash out and retire or move until the next adventure.
Lifestyle Changes– I know of several restaurant owners who have built successful restaurants but want to sell because their lifestyle has changed since they open. Uncontrollable life changes can force the sale of a restaurant. The biggest issues I find are divorce, kids, changes in family living arrangements, spousal job opportunities, or just want to take life in a different direction.
Losing interest in one’s business usually indicates that it is time to sell.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Restaurant For Sale By Owner Common Mistakes
Restaurant For Sale By Owner common mistakes are diverse and wide. A common question I receive monthly as a Restaurant Broker is, “Why list with a Broker, I can sell my restaurant For Sale by Owner (FSBO)? I understand the question because today’s websites offer sellers potentially cost-effective routes to selling a Restaurant online. Working as a Restaurant Broker for 8 years I have found a number of Restaurant For Sale By Owner Common Mistakes.
EATS Restaurant Brokers understand getting a buyer that is interested in buying a restaurant is the easy part, getting that buyer to the closing table is where the difference of being a trained Restaurant Broker compared to a restaurant seller trying to sell a restaurant for the 1st time makes a HUGE difference.
For that Restaurant, Owners thinking about selling by For Sale by Owner (FSBO), the skill set to operate a day-to-day restaurant is different than selling your restaurant. EATS Restaurant Brokers have created a list of, “The most common mistakes in selling your Restaurant for sale by owner”.
Review Books and Records- Listing price for restaurant
When it comes to selling a restaurant the owner is selling one of two valuables- Salary or Equipment. To receive the highest valuation on a restaurant the seller needs to have 3 years of strong verified tax returns. Once a seller has the tax returns coming up with a listing price is a mathematical equation and not a guess or price based on emotions.
Overpriced or Underpriced restaurants is a common mistake with For Sale Owner listings. Not having clean books and records, tax returns, profit, and loss statements will hurt the possibility of selling a restaurant.
Restaurant Brokers know the acceptable add-backs on tax returns, to provide the seller with the highest selling price. An EATS Restaurant Broker is trained on reviewing profit and loss statements and tax returns to provide a restaurant valuation that will be approved by the bank for lending.
Selling a restaurant without good books and records takes another skill set most Restaurant Owners don’t have because they don’t sell restaurants daily. The listing price has to be based on an Asset Sale which includes equipment, goodwill if any, and rights to lease assignment. This method receives a much smaller valuation and should be priced according to market prices.
Time and Effort
Selling a restaurant is a contact sport meaning you will have tons of buyer inquiries, questions, requests, calls, emails, docs requested, information requested, and hopefully, the buyer moves forward. Most For Sale by Owners don’t understand the average length of time on the market for a restaurant is 9 months. Over these 9 months the frustration of not selling, time commitment, and marketing fees can start to affect the operation of the restaurant.
Buyers are Liars and Seller are Too
Finding the truth between a For Sale by Owner and an unqualified buyer can be a tough situation. The ownership of a Restaurant is a symbol of the American Dream for tons of people. Everyone has that recipe or idea from their family that will make their restaurant successful. The actual reality is that most people are not ready to open a restaurant and are merely inquiring about information on restaurants they can’t close on.
Providing too much information upfront to a buyer without qualifying the buyer is a big mistake. We have found sellers are so eager to sell their restaurant they will meet with just about anyone. During these meetings, the sellers provide buyers with confidential information regarding their business. Wasting time dealing with unqualified buyers that say they have the money but don’t show the money is a huge common mistake for For Sale by Owners.
Many educated and sophisticated buyers have experienced a negative time working directly with owners who don’t know how to sell a restaurant, so they simply avoid those listings. Why would you list your restaurant For Sale By Owner if you are eliminating some of the available buyers in the market?
Attracting serious qualified buyers while maintaining confidentiality is a key component of what we do. We use our time and effort and pay all the marketing dollars to get a restaurant sold, we only get paid a Success Fee once we have sold a restaurant.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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How to Sell a Restaurant
Many restaurant owners get into the business thinking only about operating a restaurant but never an exit strategy to sell a restaurant. Getting out of the restaurant business can be a challenge for most sellers in today’s market. Operating a restaurant day-to-day operation is much different than operating the sales process for selling a restaurant.
A large number of restaurant owners try to sell their restaurant first and struggle for months to find a buyer. Restaurant ownership has two endings that are sell to a buyer and cash out or foreclose and lose everything. Find 3 Tips below to make selling your restaurant easier:
Inspect your restaurant books and records:
Selling a restaurant is more challenging than selling a home but both selling processes require an inspection. When selling a restaurant, the seller should confirm no UCC liens exist, liquor and retail taxes are paid, no pending lawsuits and filed tax returns match profit and loss statements. Nobody likes surprises when it comes to selling a restaurant addressing these items upfront can save a future deal.
The first thing to do when you are planning to sell your restaurant is to start gathering the required paperwork. The financials are always a critical piece of selling a restaurant.
Sellers should be prepared to provide buyers with the following documents:
- 3 years of tax returns
- 3 year of profit and loss statements
- A list of assets
- A copy of the lease
- Copies of inspections records
- Sales Tax Filings
- Copy of Franchise Reports (if restaurant is a franchise)
- Vendor List
Stage your restaurant for sale
The way a restaurant looks can mean the difference between selling a restaurant and closing the doors. Sellers can improve the chance of a sale by managing the things they can control training and appearance of staff, maintenance of equipment, and cleanliness. Buyers look for red flags when inspecting a restaurant to buy, a filthy hood system, or restaurant will have the buyer looking for reasons not to buy. The best way to increase your chances of selling a restaurant is to maintain a professional-looking business with high inspection ratings.
Hire a Restaurant Broker
For Sale by Owners quickly find out the majority of buyers contacting them on a daily basis do not have finances to move forward, don’t qualify for a bank loan, and don’t understand the buying process. Selling a restaurant is a unique niche market, hiring a professional Restaurant Broker can make all the difference considering the time and effort it takes to sell a restaurant. These brokers will know where to look for qualified buyers and will have the best understanding of the marketplace.
Another advantage not to overlook is that Restaurant Brokers are specialized brokers only working with buyers looking for restaurants for sale. Everyday Restaurant Brokers are analyzing profit and loss statements, pre-qualifying buyers, negotiating lease terms with landlords, and writing Asset Purchase Agreements. It takes an average of 6-8 months to sell a restaurant, and an average of over 50 buyer inquiries before a restaurant is sold.
Restaurant Brokers usually only get paid a commission if they sell a restaurant. They will pay for all the marketing costs, pre-qualify buyers, schedule buyer meetings with sellers all for the opportunity to sell a restaurant.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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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 Restaurant Brokers to help you negotiate a deal.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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