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Restaurant Leasing

Have a hankering to run your own restaurant? Consider restaurant leasing.

By choosing restaurant leasing over purchase, business owners can put more capital into the other costs of getting a restaurant up and running. [©Jupiter Images, 2009]
©Jupiter Images, 2009
By choosing restaurant leasing over purchase, business owners can put more capital into the other costs of getting a restaurant up and running.

Restaurant leasing allows new restaurateurs the ability to gain experience and reduce expenses when starting out in the food service industry. Restaurateurs typically have the option of leasing an existing restaurant or leasing an existing space, allowing them to carry out renovations and create a unique restaurant design. By leasing instead of purchasing the property, businesses can put more working capital into the cost of renovations, equipment, advertising and other factors influential to the restaurant's success.

Choosing a Location

Location can play a big role in determining the potential success of a business. For example, a building in an isolated area of town will have trouble attracting enough customers to remain in business. The restaurant's location should offer easy accessibility and visibility to potential customers. To get the best combination of visibility and space, many restaurateurs choose to establish their businesses in locations near highways, malls and downtown areas.

Conducting Market Research

It's a good idea for restaurateurs to carefully research their customer base before deciding on a final location. While scouting locations, they should examine the type and number of restaurants and businesses already in the area, which can help determine if the area has a high enough flow of customers to support another restaurant. The hours of operation for other businesses will also help in deciding which hours will be most profitable and aid a business in deciding to serve breakfast, lunch or dinner.

The size of the building available for lease should play a part in the final decision, as well. For example, a smaller building may not be able to accommodate large crowds or offer enough room for future expansions as the business becomes more profitable. Regardless of its size, the building should be inspected to ensure it can accommodate the ventilation, plumbing and wiring needs of the restaurant.

Negotiating a Restaurant Lease

To protect the business owner's investment, a restaurant lease should be drawn up in writing and should include a description of the property, rent amount, utilities and any foreseen rent increases (escalations). According to the U.S. Small Business Administration, most of the terms in a lease can be negotiated with the property owner. For restaurant leasing, a short-term contract of no more than three years with the option to renew may be ideal for new business owners. However, when negotiating a longer lease, landlords may be willing to reduce monthly rental payments or accept a percentage of the restaurant's revenue instead of a flat monthly rate. Since commercial leases have no standard format, consulting a lawyer is highly recommended to ensure all parties involved understand their legal responsibilities. The additional assistance of a restaurant broker or lawyer will also help get the business owner the best possible lease terms, such as an option to sublease the property or a non-compete clause that restricts the landlord from renting nearby properties to similar restaurants.

Leasing Restaurant Equipment

Since stocking kitchen with new equipment can cost tens of thousands of dollars, the restaurant owner may decide to lease cooking equipment and other restaurant supplies, as well. By purchasing used equipment, another way to cut startup costs, the restaurant saves money up front. However, used equipment generally does not come with a warranty, and the cost of repairs can be very high. Additionally, items like icemakers and freezers have shorter shelf-lives, even when purchased new, and require more frequent replacements. Leasing restaurant equipment is a cheaper option for a new business since it requires less initial investment. Companies that provide equipment for leasing can often handle the installation and maintenance as well. Additionally, lease agreements can be customized to allow purchase of the item once the lease ends, or to upgrade the item when the lease is renewed.

Understanding Regulations

A number of federal, state, county and city regulations should be met when opening a restaurant. Restaurateurs have to be careful to comply with the Americans with Disabilities Act (ADA), a federal act designed to prevent discrimination to disabled individuals. According to the provisions of the law listed at ADA.gov, new buildings are required to be readily accessible to the disabled, including their parking spaces, bathrooms and entranceways. For restaurant leasing, the age of the building in question and whether it must be renovated determine which requirements should be met. Business.gov provides a service guide to help restaurateurs understand and comply with laws and regulations affecting the food service industry.

The restaurant's location will also determine local ordinances and zoning requirements. To protect their investment during restaurant leasing, owners should be careful to have zoning assurances written into the lease. The restaurant lease should also offer an "out clause" for the restaurant owner: if the business fails without such a clause in place, the restaurateur will still be responsible for the terms in the lease agreement until it expires, which can be very costly.

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