Your restaurant lease

[DaveO]

A couple of weeks ago I saw a restaurant lease wherein the new restaurant, owned by an independent operator, was completely "snagged" by a landlord.  The landlord who also owns a restaurant in the same building grabbed the prominent space above the restaurant and put in a large, in fact a dominant sign over the tenants space.   I think the tenant is "fooked". 

In any case I used to lease and sell commercial real estate;  represented the landlord, tenant, buyers and sellers.   There were documents that highlighted points to pay attention to.   I reviewed some of them in the current web environment and thought I would pass down some significant elements that would protect a tenant.  I did see a variety of documents that highlight key issues with leases including a variety of worthwhile comments with this search

Below are issues I'd focus on:

1.  Hire a good real estate attorney.   A few of my clients went with their own attorneys who might have been great.  But they knew nothing about commercial real estate.   I used to get the lease and then mark it up from someone who knew what they were doing and presented it to the tenants attorney.  I don't recall them not accepting it.   There are a wide number of issues that can start affecting a tenant immediately if not protected in the lease.  Hire someone who knows what they are doing.

2.  Measure the space.   This was rather big in the 1980's.  I saw it mentioned in current articles.  I guess its still big.  While I didn't measure every space "back in the day" I don't recall ever measuring a space where the size was precisely what the landlord quoted.  It was always smaller.   Measure the space.  If smaller than what the landlord quotes go to renegotiate the lease.   Also know precisely what the difference is between "rentible square footage" and "usable square footage"   If your lease is for less space than what the landlord quotes renegotiate.   See what happens.   Higher rentible square footage will hit you on base rent plus all the pass through increases over the term of the lease.

3.   Have the attorney protect your long term interests with regard to your use.  Make it as broad as possible.

4.  Negotiate to limit your liability.   A long term lease with enormous liability will suck the cash out of you if the lease fails.  

5.  Negotiate everything you can with regard to signage.  Learn the building requirements plus jurisdictional requirements with regard to the landlord.   Get as much signage as you can.  Great signage will add dollars to your revenues.

I suppose this is mostly for new tenants, and specifically new restaurant tenants   Any additional comments are more than welcome.

 

[JMac]

Shameless self promotion alert. In my law practice I represent independent tenants and landlords. I am also a licensed real estate broker in Maryland  I spend a lot of my time cleaning up messes which were made because people recycle old leases, do not perform much due diligence and do not thoroughly read the lease (if they read it at all). 

"If you think it's expensive to hire a professional to do the job, wait until you hire an amateur." Red Adair

DaveO makes some very good points. Here are a few more things commercial tenants should be aware of:

1. clearly specify who owns the equipment and what happens to it when the lease is over,
2. can the landlord terminate the lease early if something better comes along (such as Amazon moving to Virginia),
3. I can only speak for Maryland but, as long as it says so in a commercial lease, it's perfectly legal for a landlord to change locks on the doors if the tenant is in breach of the lease,
4. take a close look at the HVAC system and try not to be responsible for it, they are expensive. If you pay for the HVAC system get credit for it. You will not be able to take it with you, nor will you want to, when you leave.