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Editor’s Note: This is the fourth edition of a new regular column on www.elrestaurante.com. Pepe Stepensky, a veteran restaurateur and a long-time member of the el Restaurante Advisory Panel, is offering his advice to any el Restaurante reader with a question. When he does not have a specific question to answer, he will write about the steps to opening and running a restaurant. Click here to email him a question.
Negotiating does not mean fighting. Negotiating means making a fair arrangement for both parties. When you’re talking about negotiating for the space for your restaurant, this means both you and the owner of the premises have a benefit.
There is a basic principle that you should definitely consider: Do not make any decision to take a space without being represented by a real estate agent and attorney who understand the language of a commercial lease and advise you on how to proceed. It is the best money you will invest in your new company.
A bad arrangement, due to failure to dedicate the necessary time to reading the contract, can have very bad consequences.
Here are some tips that you may find useful:
1. Define your needs: Before starting negotiations, it is important to have a clear idea of what you need for your restaurant. Consider the size of the space, the location, the length of the contract, and any other specific needs you may have.
2. Do your homework: Research the local market to determine the average rental prices in your area. It is important to see what they are charging per square foot in the vicinity of your location.
3. Don't marry just one: it's good to have more than one local possibility for your restaurant, and the simple fact that they don't see you desperate to rent gives you bargaining power. Retain your emotions and practice.
4. Interview your neighbors: talk to your potential neighbors to investigate the reputation of your landlord and to determine how successful the other businesses in the area have been and how their sales have progressed throughout their stay.
5. Property Taxes: Keep in mind that even when the premises are for rent and not owned by you, you may still have to pay your proportional part of property taxes. It may vary in some situations, but it's worth asking the question and considering it in your financial statements.
6. Determine the terms: Make sure the terms of the contract are clear and all important details are in writing. This includes the amount of rent, the length of the contract, maintenance and repair requirements, usage limits, and any other detail you've discussed. You want to make sure that you understand the terms and that you are covering all fronts so that you do not end up working for your landlord instead of yourself and your family.
7. Price negotiation: Once you have determined the terms of your contract, you can begin to negotiate the price. It is important to be very clear about what you can afford and have bases for your offer that are in line with what others are paying either in the same complex or in the surroundings.
8. Percentage of sales: Sometimes the owner of the premises will consider lowering the rent and include a percentage of sales as part of the rent. Consider that option if needed.
9. Once again: Hire legal help -- it is essential to obtain the help of a lawyer and a commercial real estate agent.
10. Signing of the contract: Once all the terms and conditions have been agreed upon, go back over the contract and make sure that all the terms that were discussed are included and clear.
11. Termination: Negotiating an escape clause early on is like negotiating your marriage and divorce early so you don't run into legal trouble. You can make an arrangement to pay a certain amount or number of months rent in order to abandon your contract commitment.
12. Try not to sign personal collateral to secure the contract. It is never a good idea to pledge your personal assets as collateral for your business.
13. Check your numbers well, make a proforma and analyze your expenses and the time in which you will recover your money and amortize your investment.
14. Your rent must not be more than 10% of your monthly sales, so give yourself the task of making the most conservative forecast of your sales possible to ensure that you do not exceed this rule.
15. How long: They will try to offer you a 10-year contract or maybe longer. It is preferable to have the same period of time starting with a short 3 year period and a 7 year extension.
Remember that negotiations are an important part of any commercial lease, so take the time to get it right. Be very clear about your objectives and review your numbers well.