Lease Negotiating Advice

Discussion in 'The Think Tank' started by HPSC, Apr 23, 2019.

  1. HPSC

    HPSC New Member

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    Hi All!

    I’m new here and have been reading the threads for hours each day — what a fabulous community!

    Just hoping to hear your thoughts on how to approach negotiating my lease. It’s a 1200 sf cold dark shell in a space that’s been vacant several years. Asking rent is 800 plus 200 common charges. LL already said he would contribute to the upfit with waived rent but would like some input on what my goals should be.

    What would you do? Thanks!
     
  2. clownhair

    clownhair Active Member

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    Heres how I would approach it

    First why has it been empty for so long? Thats possibly concerning to me as an indicator that the location may be lacking.

    Second since it has been empty so long the landlord should be pretty motivated to rent it. Having it vacant is costing them money at the bare minimum of the cost of property taxes.
    With that in hand I would look to try and get rent as cheap as I feel feasibly possible. I would also try and negotiate a period of free rent so your business has an opportunity to take off while your overhead is a bit lower. I also would try and get them to generally set the build up for me. On my last build I got them to do all electrical, plumbing, ceiling tiles, and wall coverings.
     
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  3. Joe

    Joe Active Member

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    I've done restaurant leases for years. There's always two routes: Give him the asking rent but negotiate extras like extended free rent and some of the build items clownhair mentioned OR offer a counter rent. Since the rent is so low already, it may be best to first try and negotiate extras and given the place has been vacant for several years, you can bet most of what's in there is not likely up to code. If you go with countering the rent, ask for a gross lease so the "common charges" (CAM) are either included or skipped completely. I always prefer gross leases so it's black and white. Landlords can typically increase the nets/CAM or "common charges" over time and there's no telling what that could be. Gross leases are worth more as well if/when you ever sell the successful business you're about to build.

    Another side note, make sure you are not on the hook for property taxes. Many landlords have been trying to add these expenses onto the tenants the past decade but just say no and put your foot down. If property taxes go up and often times they do, that's added rent on your plate. Any questions, please don't hesitate and best of luck!
     
    Last edited: Apr 24, 2019
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  4. HPSC

    HPSC New Member

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    Thank you so much, Joe and Clownhair!
     
  5. Steve Amlani

    Steve Amlani New Member

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    Just like others have mentioned. Depending on your current situation and cost of your buildout I would try to negotiate a min of 90-120 construction time and ti monies as well. Being that it is a shell as you will need to upgrade the space substantially to turn this into a functional restaurant 20-30 sq ft seems reasonable but depends on the area/state. I always like to have a 5 year lease with two five year options so you do not need to go back and revisit this again. See what is covered in cam charges. Some LL have the trash, water, grease interceptors included in those charges so you want to be aware of what is going to be passed off to you.
     
  6. paul7979

    paul7979 Well-Known Member

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    At $8 per square foot annual rent, I wouldn't expect much in the way of buildout allowance. My suggestion would be to ask for free rent while you build out, capped at 6 months. Ask for lease terms favorable to you as far as length of lease, extensions and rent escalations. You might try negotiating what is included in cam charges, but if landlord is only collecting $9600 per year in rent, I doubt he's too motivated to cover much more than the minimum.
     
  7. bodegahwy

    bodegahwy Well-Known Member

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    Certainly if you can arrange for a gross lease that can be good thing. On the other hand, it can also be more expensive. If you end up with a triple net lease you should expect to pay the property tax. A LL can give the best rent possible if they are able to eliminate variables. If the LL has to assume the risk of the property tax changing they will simply raise the rent they are willing to accept to cover that risk. That way you loose for sure.

    Since this place has been vacant for years you are in the drivers seat.

    1. The advice above to try and understand why it has been vacant is good advice.
    2. Make sure you have the right to audit the common area expenses and that the lease states that the amount to be paid is actual expenses not some flat rate. Expect that there will be a property management fee but that should not be more than about 50 cents per square foot annually. LL's cannot just raise these things unless the expenses actually rise. This not some evil part of leasing. If the property has common trash removal, snow removal, parking lot maintenance etc it can be quite a bit less expensive than properties where the tenant pays those things directly.
    3. The advice above to get free rent is good. In your shoes with a long vacant space I would be asking for a long period where you pay the common area costs but no rent. Perhaps a year. The reason to offer to pay the common area expense is that it stops the out of pocket drain for the LL while recognizing that those costs will rise with a new tenant using the trash etc.
    4. I would suggest you require the LL to bring the space to code including ADA compliance BEFORE you take possession.
     
  8. HPSC

    HPSC New Member

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    Thanks so much, guys. It’s a small town that’s growing and the space is between the grocery store and ABC store — can’t get much better than that around here. The leasing agent told me the LL (who’s out of state) is willing to do free rent/upfit $. I’ll definitely take all your advice. Thanks again.