6 Tips on How to Better Negotiate a Lease For Your Restaurant

By July 19, 2019 News
CHI Blog

6 Tips on How to Better Negotiate a Lease For Your Restaurant

So you want to start a restaurant and need to find a location for your business. Your next step is to negotiate a lease with a landlord.

Leasing commercial real estate in Toronto is often the most significant business expense for many Toronto-based small businesses, and many companies do a poor job of negotiating a proper deal. They might end up overlooking hidden costs, buying properties that are too big, or renting a space that is too small.

Don’t make these same mistakes. Read on to learn these six tips for better negotiating a Toronto commercial property for lease.

Tailoring Your Lease Around Your Business Plan

Sit down and plan out what you need out of your lease. Your restaurant’s current and future needs should be reflected in the amount of rental space you take. If your business grows over time, ensure the lease allows it to renovate and expand.

If your plans are uncertain, consider adopting a short-term lease. While you’ll pay a higher monthly cost, the additional flexibility might be worth it.

It’s important to separate your must-haves from your wants. Decide how much you truly need to avoid overpaying for unused space.

Evaluate Your Options

There are many types of leases when it comes to commercial real estate in Toronto and throughout Canada. When paying for your rental, you have a base rent to cover as well as extra incidental costs, such as utilities, taxes, maintenance, and insurance.

  1. In a net lease, you pay some of the incidental costs out of your own pocket in exchange for a lower monthly base rent.
  2. In a gross rent lease, you only need a single payment that covers both base rent and incidental costs, though occasionally you and your landlord might share some of the extra expenses.
  3. In a percentage rent lease, the base rent is paid in addition to a percentage of your gross sales. This setup is popular for shopping malls or spaces where multiple restaurants are located.

Compare Market Rates

You’d never purchase a new television without comparing prices from different brands, so it’s no different for leasing commercial real estate in Toronto. Cross-check your landlord’s deal with those of others around town and see whether you’re paying above or below the market rates. Use this information to negotiate a better deal.

Don’t forget to consider your budget. Review what you need to pay for and whether any future increases in your rent are possible. Don’t hesitate to ask about pricing specifics. Extra fees such as maintenance and utilities should be factored in addition to your base rent.

When it comes time to renew the lease, there’s a chance your landlord might give you a better deal if the rental market declines – which is doubtful anytime soon in Toronto.

Inspect the Physical Location

Anyone working in real estate will tell you that success is all about location. Where your restaurant is will make or break your chances of succeeding.

Take some time to inspect the premises physically. How much traffic is there, and are there enough parking spots for your customers? Will there be any local competitors nearby? If you have concerns, check the lease for a competitor clause, which controls whether your landlord can lease out to another restaurant in the same property.

Contact other local businesses as well to ask about their experience renting in the area. You might learn something about your landlord’s reputation that could be important in your decision.

Consider the Terms of Your Lease

The agreements in your lease are just as important as your price. Read over the document carefully and look for the following features:

  • What are the termination conditions? Under what circumstances could your lease be cancelled? Perhaps your sales aren’t as high as you hoped and you decide to move. Can you get some of your money back? The question goes both ways too: can you be kicked out for any reason?
  • Is subleasing an option to generate additional income for the rent?
  • What are the renewal conditions? When your lease ends, you don’t want to be forced to move out.
  • What is the policy on renovations and improvements? If the lease ever terminates, can you get some of your money back for the upgrades? Are leasehold improvements even allowed under the agreement?

Improvements and renovations? Can you get money back for it in case you terminate? Zoning laws allow for planned leasehold improvements and ensure they don’t break the terms of the lease. Landlord approval is typically needed in writing before renovations can commence.

Have a Lawyer Prepared

Not everything will go smoothly for a new restaurant. Be prepared for mistakes by hiring a lawyer and agent to help you spot nebulous or risky parts of your lease. Doing so protects you from overlooked terms, scams, and overall hassles. A lawyer/Agent can also get you out of a lease in case the deal goes bad.

Remember that a general-purpose lawyer probably isn’t the best option; choose a commercial real estate lawyer who understands the specifics of complex leasing regulations.

Get Your Lease Done Right with CHI Real Estate

Get in touch with the CHI Real Estate team if your next restaurant venture starts with a leasing search for commercial real estate in Toronto.

Don’t let the complexities of the process distract you from focusing on what matters: providing a successful restaurant experience to your customers in the Toronto area.