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.
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 firstname.lastname@example.org. Visit our website at www.EATSbroker.com