Restaurant Real Estate Advisors

Restaurants for Lease

  • Home
  • About
  • Guides
    • Restaurants for Lease
    • Restaurant for Sale
    • Buy a Restaurant
  • Blog
  • Contact Us
  • (310) 383-6558
Home » Archives for Mark Chase

Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant

January 2, 2021 by Mark Chase 1 Comment

The Ultimate Guide to Restaurants for Lease

This is my complete guide to restaurants for lease.

Locating restaurants for lease is just one step in the journey to open a restaurant.

Before signing a restaurant lease, there are many steps required if you want to succeed.

This guide provides a step-by-step guide on restaurants for lease to dramatically cut the time needed to secure an excellent restaurant location and negotiate a rock-solid restaurant lease.

The Ultimate Guide to Restaurants for Lease

Just enter your name and email & click Download

We respect your email privacy | Powered by AWeber Email Marketing

Finding Restaurants for Lease-Let’s get started

You should complete the following steps before starting your search of restaurants for lease:

  • Create a Business Plan
  • Form Business Entity
  • Prepare Personal Financial Information

Your Restaurants for Lease Roadmap is Your Business Plan

The main ingredients of your business plan include:

  • Menu/Concept
  • Target Customers
  • Competitive Analysis
  • Pricing
  • Financial Projections
  • Cost of Rent
  • Start-Up Costs

Before looking for a restaurant for lease, you need to have a road map. The following information will be the backbone of your business plan.

Restaurants for Lease-Your Concept and Menu Matter

You will design your restaurant around your concept and menu.

There are many types of restaurants. A few examples include;

  • Fast Food
  • Quick Service
  • Fast Casual
  • Fine Dining

Restaurants for Lease-Who are Your Target Customers?

Determining who your target customer is and knowing where they live, work, and play is critical to your success.

Without getting into a detailed discussion of demographics or psychographics, your customers will share several characteristics such as age or income level.

The quickest way to learn about your customers is to study your competition.

Restaurants for Lease-Competitive Analysis is Critical

Let’s say you plan to sell hamburgers priced between $6 to 8 dollars.

We can assume a chain like Smashburger is one of your competitors.

If your competitor is a large chain like Smashburger, it’s pretty easy to learn about their customer profile.

Often you can check under the franchising section of your competitor’s website.

You can also contact their real estate department and ask for their site criteria.

Doing so will provide you with the information they use to analyze sites.

According to information provided from their real estate department, you can determine the criteria they use to find restaurants for lease near their target customers.

Site Criteria Smashburger uses when considering Restaurants for Lease

Trade Area of Restaurants for Lease

MAJOR METROPOLITAN MARKET PREFERENCES

  • Traffic Count: > 50,000 Cars Daily
  • Employees (3 Mile Radius): > 75,000
  • Population (3 Mile Radius): > 75,000

SECONDARY MARKET PREFERENCES

  • Traffic Count: > 30,000 Cars Daily
  • Employees (3 Mile Radius): > 40,000
  • Population (3 Mile Radius): > 50,000
  • Average Household Income (3 Mile Radius): $60,000
  • Proximity to QSR Burger, Adult Casual Burger, & Fast Casual Competitors

SITE CHARACTERISTICS

  • Size: Typically 1,600 – 2,200 Square Feet
  • Building Type: End Cap / In-Line Location
  • Parking: Minimum 16 Spaces, Preferred 20-25
  • Seating: 40-70 Interior with Exclusive Patio as Available
  • Full Dress Trade Package and Signage

CONSTRUCTION MINIMUMS

  • Electrical: 400 AMPS (120/208 V)
  • Gas: 2.5″ Gas Line, Minimum 2 Million BTU
  • Water: Per Code, 1.5″ Service Minimum
  • Grease Trap: Per Code, Installed
  • HVAC: 1 Ton per 150 SF, Approximately 10-12 Tons

As you can see, Smashburger looks for restaurants for lease with more than 75,000 employees within 3 miles, and a total population greater than 75,000 people within 3 miles.

They also look for an average household income of $60,000 per year within a 3-mile radius.

They have also provided valuable information about their business:

SMASHBURGER AT A GLANCE

OUR BUSINESS

  • Dine-In (70%), Carry Out (30%)
  • Lunch (55%), Dinner (45%)
  • 10am-10pm Daily
  • $8 average check

OUR RESTAURANT

  • Modern Décor
  • 1,600-2,200 Square Feet
  • Booth & Flexible Seating (40-70 Seats)
  • Patio Preferred (20-40 Seats)

OUR MENU

  • 100% Angus Beef Smashburgers
  • Smashfries, Sweet Potato Fries, Classic Fries, Haystack Onions, Veggie Frites, Häagen Dazs Shakes & Floats
  • Chicken Sandwiches & Salads
  • Beer & Wine

OUR SERVICE

  • Counter Ordering, Table Service
  • 5-6 Minute Service Times
  • 20-25 Minute Table Turns

Using this, you can either look for restaurants for lease near existing Smashburgers or research areas with similar demographics.

Many free and paid services offer demographic information.

Most real estate brokers provide necessary demographic information as part of their marketing information about the property they are marketing for lease.

Where should you look for Restaurants for Lease?

Before starting your search for a restaurant property, you need to determine the “Trade Area” where you wish to open and the type of real estate you want to consider.

What is the Trade Area when searching for Restaurants for Lease?

A restaurant’s trade area is the geographic area that contains 75 to 90 percent of your customers.

According to Groupon, Customers spend 80 percent of disposable income within 2 miles of a person’s home.

The geographic area can take many shapes and is determined primarily by your customers’ distance or time to access your place of business.

A trade area comprises a combination of employees, commuters, and shoppers.

Quick Service Restaurants (QSRs) and Fast Food restaurants are typically convenience-driven concepts.

Their success depends more on convenience to their customer than a destination business such as a new car dealership where customers usually plan to visit the location for a specific reason.

For this reason, the trade area for quick-service restaurants is usually 1-2 miles or 3-10 minutes in the distance from their primary customer in a central metropolitan area such as Los Angeles.

Many quick-service restaurants rely on residents living within the surrounding neighborhoods for 40%-60% of their business.

Other concepts, such as those located in a Central Business District, may depend almost entirely on employees working within a few blocks and receive limited sales from residential customers.

Ideally, a restaurant’s trade area will provide the right mix of residential, employees, and a robust retail draw to attract shoppers.

The key to determining which trade area is right for your restaurant is the combination of :

  • the total number of people who match your customer profile
  • the right amount of competition
  • position to your competition
  • and the perceived convenience of visiting your business in the eyes of your potential customers.

Restaurants for Lease-Determining Your Trade Area

The research about your competition should give you a starting point when you begin your property search.

Each Trade Area is unique, and you will need to determine the boundaries for each.

While many restaurants for lease property brochures will provide demographic reports showing 1, 3, 5-mile radius rings, the actual boundaries are often much different.

Restaurants for Lease Sample Radius Map

Restaurants for Lease-Sample Trade Area Map

A more accurate method to determine your store’s trade area is calculating the drive-time to and from your customers’ home or work to your proposed store.

Let’s use the following example. You have researched a competitor’s site, and you have determined that locating near this store is a good starting point.

Purchase a map or print a map using Google or Yahoo maps. Make sure the map shows all of the streets within 3-4 miles in all directions.

Using a highlighter, mark the major roads leading to residential neighborhoods, business districts, and retail or entertainment areas.

Using a watch or a stopwatch, drive from your proposed store heading north towards your first destination.

Using your timing device, mark your location on the map at various intervals such as 3, 5, and 10 minutes.

Be sure to note any barriers that require you to alter your route or prevent you from reaching your destination.

Using the same process, drive South, East, and West. Your map should now have markings in each direction for 3, 5, and 10 minutes.

The more paths of travel that you compute, the more accurate your trade area boundaries are.

Using dotting lines, connect the dots for each of the periods.

This map should give you a good idea of how easy or difficult it will be for your customers to reach your store.

Use the boundaries developed on your plan to determine the customers’ demographic profile within your limits using various demographic programs.

It’s essential to conduct this study during various times of the day to factor in traffic conditions.

A five-minute drive at 10:00 a.m. on Saturday may take thirty minutes in rush hour traffic.

You will need the help of a commercial real estate broker or demographics service to provide demographics at the level provided below.

Restaurants for Lease Sample Drive-time Map

Restaurants for Lease Drive-Time Map

Site Considerations to Evaluate for Restaurants for Lease

Restaurant Traffic Generators

Most businesses’ primary traffic generators consist of employment centers, residential neighborhoods, shopping, commuter traffic, and entertainment.

Determine where your customers live, work, shop, and entertain themselves within 1 to 3 miles.

Label these locations on a map.

Access

Access to your location can significantly impact your sales.

 Some restaurants for lease are visible but too difficult to access.

 Things to consider:

  • How long does it take to get in or out of the property?
  • Can you make a left-turn into or out of the property?
  • Is there a median that prevents cars from entering from one direction?

The more comfortable and faster it is to enter and exit (ingress & egress), the better

Visibility

Visibility is vital for most restaurants.

Many sales are impulse sales and not planned. End-caps and pads typically have the best visibility in shopping centers.

If you are locating inside a shopping center, try to find a visible space for cars as they enter the shopping center.

Check regarding any restrictions on the size and type of signage allowed.

Some cities may limit colors and require standardized signage that provides little differentiation between you and the other tenants.

Restaurants for Lease-Property Types for Restaurants

Restaurants open in all types of properties.

Although some restaurants have unique locations, most restaurants are in one of the following property types.

Neighborhood Centers

Neighborhood centers provide convenience shopping for the immediate neighborhood’s day-to-day needs.

They typically consist of a grocery store, major drug store, or both. The majority of neighborhood centers range from 30,000 to 100,000 square feet.

Strip Centers

Strip centers consist of a row of at least three retail stores managed as a single property.

Most strip centers are L-shaped, U-shaped, or a straight line of stores.

Strip centers typically include dry cleaners, fast food, convenience stores.

Community Center

A community typically offers a broader array of soft goods than a neighborhood center.

Community center tenants sometimes include home improvement, furnishings, and super discount stores.

Power Center

A power center includes several large anchor tenants, including warehouse stores, and “category killers” such as Best Buy and Target.

Free-standing

A free-standing is building is a stand-alone building. McDonald’s and other fast-food restaurants with a drive-thru often prefer this type of facility.

Mixed-Use

Mixed-use buildings are typically apartment buildings with retail on the ground level.

Most of the new construction in cities with limited land is mixed-use.

Many office buildings have a few spaces on the ground level to service the tenants of the building.

Restaurants are often tenants in these buildings if the neighborhood is mostly office space.

Types of Restaurant Space For Lease

Pad

Pad buildings are free-standing buildings and often located at the edge of larger shopping centers.

Restaurants usually prefer these buildings due to being closer to the street and the visibility they provide.

End-Cap

End-caps provide the best visibility in most shopping centers. They often provide additional signage and visibility on two sides of the building.

Inline

Inline spaces are located between anchor tenants in larger shopping centers or between end-caps in smaller strip centers.

Elbow

The elbow is typically the worst space in most shopping centers. The configuration is often not a rectangle, and visibility is often lacking.

Financial Projections to Analyze Restaurants for Lease

Your projected sales will determine your entire business plan.

Again, your competition is the best source to determine your sales potential.

If your competition is a publicly-traded company, you can often determine their average sales per unit. Some companies also provide this information when they advertise their franchise to prospective franchisees.

Some sources for sales information are:

  • QSR Magazine
  • Nations Restaurant News
  • Franchise Disclosure Documents
  • Technomic.com

Here’s an overview of a special report from National Restaurant News.

Source NRN.com

Estimated Sales Per Unit 2013

LSR/Burger

McDonald’s                                                                                      $ 2,519,400.00

In-N-Out Burger                                                                             $ 2,384,600.00

Culver’s                                                                                             $ 1,831,400.00

Steak’n Shake                                                                                  $ 1,697,800.00

Wendy’s                                                                                            $ 1,405,300.00

Jack in the Box                                                                                $ 1,380,000.00

White Castle                                                                                     $ 1,268,400.00

Carl’s Jr.                                                                                            $ 1,255,400.00

Burger King                                                                                      $ 1,193,400.00

Five Guys Burger and Fries                                                          $ 1,070,400.00

Dairy Queen                                                                                     $ 634,600.00

LSR/Sandwich

Jason’s Deli                                                                                     $ 2,427,300.00

McAllisters Deli                                                                             $ 1,358,200.00

Arby’s                                                                                               $ 881,200.00

Jimmy John’s Gourmet Sandwiches                                         $ 874,700.00

firehouse Subs                                                                                $ 726,600.00

Subway                                                                                             $ 482,300.00

Quiznos Sub                                                                                    $ 291,200.00

LSR/Mexican

Chipotle Mexican Grill                                                                 $ 2,072,200.00

Taco Bell                                                                                        $ 1,319,800.00

Del Taco                                                                                          $ 1,122,600.00

Moe’s Southwest Grill                                                                  $ 973,100.00

Qdoba Mexican Grill                                                                    $ 964,000.00

Beverage-Snack    

Krispy Kreme Donuts                                                                   $ 2,407,400.00

Dunkin Donuts                                                                               $ 874,900.00

Starbucks Coffee                                                                            $ 854,700.00

Jamba Juice                                                                                     $ 620,700.00

Baskin Robbins                                                                              $ 207,100.00

Chicken

Chick-fil-A                                                                                      $ 2,769,900.00

El Pollo Loco                                                                                  $1,533,600.00

Popeyes Louisiana Kitchen                                                        $ 1,168,200.00

KFC                                                                                                  $ 957,700.00

Wingstop                                                                                        $ 882,400.00

Church’s Chicken                                                                         $ 718,600.00

Pizza 

CiCi’s Pizza                                                                                      $ 866,300.00

Little Caesars Pizza                                                                        $ 813,700.00

Papa John’s Pizza                                                                           $ 783,100.00

Pizza Hut                                                                                          $ 742,400.00

Domino’s Pizza                                                                               $ 722,100.00

Sales can vary significantly based on factors such as location and competition in the marketplace.

Using average unit sales is just a starting point.

Once you determine where you plan to open, you will need to dig deeper and possibly modify your numbers.

Also, a large well-known brand like Subway or Chipotle will have higher sales and better margins based on their advertising, brand recognition, and economies of scale.

You should not expect to outperform your competitors.

Other sources to determine sales for Restaurants for Lease:

One of the easiest methods to determine your competitors’ sales is to ask.

Have lunch or dinner at your competitors’ restaurant and ask the manager about their business.

Tell them you are new to the area and thinking about opening a retail store.

Another more time-consuming method is to count customers.

This method can confirm your assumptions once you narrow down a neighborhood where you plan to open.

Determine the average check per person, sit outside, and count the number of customers entering the store during the day’s various times.

In addition to determining sales for your competitor, you will learn the slow and busy times are so you can plan the number of employees needed during different times of the day.

Cost of Rent When Considering Restaurants for Lease

Rent is the most critical cost to determine. You can adjust other expenses in your business, but not your rent once you sign a lease.

The general rule of thumb is, your total occupancy cost (rent and additional fees for property taxes, insurances, common area expenses, etc.) should not exceed 6-12% of your gross sales.

Your annual sales determine the rent you pay.

Your business plan should provide a realistic expectation of annual gross sales if you were diligent in researching your competition.

You can benchmark your numbers by looking at your competitors’ sales and occupancy costs if they are public companies.

The chart below from Chipotle Mexican Grill’s Form 10 K shows occupancy costs equal to 6.3% of revenue.

Fine-tune after you determine the trade area where you will open.

If your research shows that the occupancy costs for your primary competitors range between 6% and 10% and you’re projecting sales equal to $1,000,000 per year, the annual rent you can afford ranges between:

$1,000,000 @ 10% = $100,000

$1,000,000 @ 6%= $60,000

Assuming you need 2,000 square feet to run your restaurant, you can pay between $5,000 and $8,300 per month, including common area charges, property taxes, and building insurance.

Your rent will determine where you look for restaurants for lease.

Tip: Just because the rent is considered “market rent,” it does not mean your restaurant can justify paying the landlords asking price. Remember, Sales determine rent.

Restaurants for Lease-Start-Up Costs to Lease a Restaurant

Your start-up costs will depend on many factors, including but not limited to the size of the store, design, type of equipment required, and existing infrastructure of the property.

You will either be building your concept from scratch or converting a former restaurant space to your idea.

It’s a good idea to know the costs to build from scratch so you can compare your options.

The following Capital Budget sheet includes most of the items you will need to budget.

Leasehold Improvements                                                             $50,000-$200,000

First Month’s Rent & Security Deposit                                      $5,000-$10,000

Equipment & Supplies                                                                   $4,500-$10,000

Outside Signage                                                                              $2,000-$10,000

Opening Inventory                                                                         $4,000-$10,000

Insurance                                                                                          $1,000-$5,000

Opening Advertising                                                                      $2,500-$5,000

Legal & Advertising                                                                        $1,000-$10,000

Website Design                                                                               $2,000-$20,000

Working Capital                                                                               $10,000-$30,000

Payroll (3 months)                                                                          $15,000-$50,000

Security System                                                                               $2,000-$6,000

Total                                                                                                    $139,000-$376,000

Exact costs for each item will vary based on where you live, and the vendors you hire.

The following chart shows the average cost to build their restaurants.

CompanyAverage SFConstruction CostBuild PSF
Chipotle2535$800,000$315.58
Panera4500 $1,050,000.00$233.33
5 Guys2500 $350,000.00$140.00
Smashburger2000 $400,000.00$200.00
Subway1200 $187,750.00$156.46
Dickey’s1800 $395,000.00$219.44
Wingstop1500 $408,000.00$272.00
Firehouse1800 $400,000.00$222.22
Wahoo’s2500 $600,000.00$240.00

Using the average cost per square feet, you can get a pretty good idea of the estimated cost to build a new restaurant. 1,200 x $300.00 = $360,000.

Business Entity Formation

Before looking for a location, it’s a good idea to establish your company first.

Many new restaurateurs find a location first. When they do, they would have to rush to form a corporation, open a bank account, and obtain the various licenses needed to run a business.

You need the entity before signing a lease to avoid future lease modifications.

You will look much more credible to prospective landlords and investors, if applicable when you take care of this upfront.

Corporation, LLC, or Sole Proprietor

You will create your business entity based on your personal preference and advice from your attorney and CPA.

It is best to set this up a corporation or LLC early for the reasons listed above.

Suppose you are doing business as a sole proprietor or operating under a different name than the corporation or LLC. In that case, you will need to file a DBA.

DBA

You can find information about filing a DBA using the following link:

Register DBA

Incorporate Your Business

If you plan to build a large brand or franchise in the future, you may want to determine if your name can be trademarked and confirm that a competitor is not using the name.

Tax Identification Number

If you form a corporation or LLC, you will need to obtain a tax id or EIN.

You will need this before opening a business checking account.

Apply for EIN

Licenses

The following link provides a list of licenses based on your zip code and type of business.

License and Permit Information

You will need additional licensing to operate your restaurant. Permitting will be covered in more detail.

Bank Accounts

Most landlords will request a bank statement providing proof of funds.

Landlords will become suspicious when money that was not there in your bank account will suddenly appear during the prior statement period.

It’s a good idea to open your account before starting your search and adding funds to it.

Having a bank account ensures that your accounting for any expenses incurred during your search and before opening the business.

There is a good chance you will need to pay vendors for items such as logo design and concept design before finding a location.

Personal Financial Statements

Balance Sheet and Business Plan

Before submitting any offers, it’s essential to be prepared to sell yourself.

Don’t wait until the last minute when you may be competing with other parties. Prepare in advance to provide the following:

  • Executive Summary or Business Plan
  • Personal Balance sheet listing assets and liabilities
  • Credit report
  • Bank statements
  • (2) Years Personal Tax return

You may not need all of the above. Still, you should be prepared at a minimum to provide a credit application, including a balance sheet and a business plan or executive summary.

Personal Balance Sheet

You will need to provide a personal financial statement to prospective landlords. It’s a smart idea to have a generic balance sheet prepared in advance.

Some landlords will require their form, but it will be much quicker if you have this information readily available.

Note: Unless your corporation or LLC has a proven financial history and substantial assets, the Landlord will require a personal balance sheet.

The following is a sample credit application and balance sheet to gather your information.

Sample Restaurant for Lease Application

If you have followed the steps provided above, you should already have

  • Defined your concept
  • Known your target customer and demographic profile
  • Known your competitors’ sales, store size, and occupancy costs
  • Have the majority of your business plan complete
  • Have your business entity and bank account
  • Determined where to open your restaurant

You are now almost ready to start looking for a site.

But before you start looking, you need to understand some basics about zoning and permits.

You can’t just open a restaurant anywhere you like.

Zoning and Permits for Restaurants for Lease

What is one of the biggest time-wasters made by first-time restaurateurs?

Not understanding the zoning and permitting requirements required to open a restaurant.

Zoning

Theoretically, the primary purpose of zoning is to segregate incompatible uses. Zoning typically designates an area as residential, commercial, agricultural, and industrial.

Before starting your search, you should research which zoning allows your use. Some uses, such as a bar or nightclub, may have stricter zoning rules.

Also, some individual parcels may have different zoning than the neighboring plots of land.

Before moving too far along in your planning, it’s a good idea to confirm the property that you wish to open your restaurant is zoned correctly.

Where to Find Zoning Information

Most cities have zoning information available online. Typically, you can find zoning information listed under City Planning or Building & Safety.

The following links show zoning information for the City of Los Angeles.

Los Angeles Zoning Information 

Los Angeles uses ZIMAS for their zoning information. You can type the address in the ZIMAS database to receive detailed zoning information for every property.

Los Angeles City Planning Department

The American Legal Publishing Corporation provides all of the zoning information for Los Angeles. You can view all the zoning codes at

American Legal Publishing Zoning Information

The quickest method is to call your local planning department and ask a planner to provide you with the necessary information needed.

Ask what zoning your specific use requires. Be sure to ask about parking requirements.

There are different requirements for fast-food and full-service restaurants. Many cities require additional parking when the restaurant exceeds a specific size.

Is Restaurant Use Allowed?

Certain cities limit the total number of food establishments for a given area. For example, Main Street in Santa Monica, California, has limitations on the total number of food establishments.

It’s always a smart idea to discuss your plans with the planning department.

How Much Parking is Required for a Restaurant?

The biggest mistake both restaurateurs and many real estate brokers make is not understanding parking codes related to restaurant use.

Most cities require additional parking for restaurant use.

Parking significantly impacts where you can open for business.

The parking required is based on the square footage and type of use.

You can lose months of time and money when the property does not meet governmental parking codes.

The number of parking spaces required in Los Angeles typically depends on the type of restaurant (take-out, full-service, fast food) and the leased space’s size.

The parking requirements are a ratio.

For example, a 1,000 square-foot full-service restaurant will require ten parking spaces. (10/1,000 parking ratio).

If you are considering a free-standing building, determining the parking required is straight forward.

If the building is 1,000 square feet and you have ten or more parking spaces, you should have the necessary parking per city code for your use.

The calculations get more complicated when you’re dealing with a shopping center with multiple uses.

How to Perform Parking Calculations on Restaurants for Lease

Step 1) 

Request a rent roll or site plan showing the existing tenants’ names, type of use, and square footage for each Tenant.

Step 2) 

Using the city’s parking ratios, determine the required number of spaces for each current use.

For example, a retail store requires one space per 250 square feet.

If space is 1,000 square feet, divide by 250, and you can determine that the store requires four parking spaces.

(1,000/250= 4)

Step 3) 

Add up the total required spaces based on current uses.

Retail Space #1 = 1,000 square feet (parking spaces required 4)

Retail Space #2= 2,000 square feet (parking spaces required 8)

Proposed Restaurant Space #3= 1,100 square feet (parking spaces required 11)

Total parking Required for Shopping Center = 23

Step 4) 

Count the total number of parking spaces for the shopping center.

Total number of parking spaces 24

Step 5)

Determine if there is adequate parking based on your required parking and the total number of spaces after subtracting the total parking spaces required based on existing uses.

Parking Spaces Provided = 24

Parking Spaces Required = 23

Excess Spaces= 1

In this situation, the property has adequate parking to meet the required parking.

DO NOT SIGN A LEASE UNTIL YOU DETERMINE THERE IS ADEQUATE PARKING.

Parking Loopholes for Restaurants for Lease

Adjust your square footage.

The simplest method to get around parking issues is to work within the less intensive parking codes’ size requirements.

For example, in Culver City, California, restaurants 1,500 square feet or less in size have the same parking ratio as retail use (1 space per 350 square feet).

If you go above 1,500 square feet, the ratio increases to (1 space per 100 square feet).

Los Angeles has similar rules, but the square footage must be below 1,000 square feet.

Get Creative

Many cities do not include patio seating in the parking calculations.

Some restaurant operators move the storefronts back to reduce the restaurant’s size and meet the less restrictive parking but still maintain their total seating with a covered patio.

Off-site Parking

Another option is to lease additional parking from a neighbor. Rules vary by city. Some will require a lease with the same term as the lease for your restaurant.

Valet Parking

Valet parking may allow you to park additional cars in your existing parking field or off-site.

Parking credits are also available in some neighborhoods.

Tip: Existing restaurants are typically grandfathered and may not be required to meet the current code.

Health Department

In addition to zoning and building codes, restaurants are also subject to Health Department codes and permits.

The permitting process for the health department varies depending on region and current status of the property.

For example, taking over an existing operational restaurant will be much faster and will require less paperwork than converting a retail space to restaurant use for the first-time.

In most cases, a restaurant closed for more than 90 days will require much of the same information and take just as long to permit as a conversion from retail to restaurant use.

Many health departments publish their guidelines to open a restaurant on their website.

How to Find Restaurants for Lease

There are three basic approaches to finding a restaurant for lease.

  • Internet Sites
  • Commercial Real Estate Brokers
  • Restaurants for Lease Signs

Most searches begin on the Internet or driving specific neighborhoods and calling “restaurants for lease ” signs.

The first decision you need to decide is the type of restaurant space you are looking to lease.

There are two choices.

  • Shell Space
  • 2nd Generation Space

Most franchises and national chain tenants prefer to build-out their prototype store and search for space in shell condition.

Many first-time restaurateurs look for the “2nd Generation” restaurants for lease currently or formerly built for restaurant use.

Restaurants for Lease Internet Sites

For a complete list of restaurant listing sites, click here.

How to Find Restaurants for Lease on Loopnet.com

How to Find Restaurants for Sale on BizBuySell.com

Commercial Real Estate Brokers

Suppose you are going to lease a restaurant. In that case, there’s a 99.9% chance a commercial real estate agent or broker will represent the Landlord.

Whether you decide to hire your broker or search for restaurants for lease on your own, it’s essential to understand the commercial real estate broker’s role and how they get compensated.

Real Estate Brokers

The term “real estate broker” or “agent” is general.

It’s essential to understand the different roles of real estate brokers and how they are involved with commercial real estate aspects.

A broker must meet more stringent educational requirements; an agent works under a Broker’s license.

Commercial Real Estate Broker

Most commercial real estate agents or brokers specialize in a specific type of property or geographical area.

For example, office agents and brokers specialize in office buildings. Retail agents and brokers typically lease or sell retail properties and shopping centers.

WARNING!! It’s not a good idea to work with a broker that sells homes or works on a property type such as office buildings or apartments if you are opening a restaurant.

Who Does the Commercial Real Estate Broker Represent?

Most brokers work for the property owner or Landlord. Some brokers called Tenant Representatives or “Tenant Reps” work primarily for tenants

Beware of Dual Agency

Dual agency occurs when a single real estate agent represents both the buyer and seller or Landlord and Tenant in a real estate transaction.

A real estate agent can’t represent two opposing parties’ best interests in a negotiation.

Use your agent to protect yourself because the Landlord’s agent cannot represent your best interest.

Who Pays the Commission for Restaurants for Lease?

When a property owner hires a broker, they agree to pay a commission to the broker. Typically, the commission is a percentage of the lease.

For example, if the total rent paid over three years is $100,000, a 6% commission will equal $6,000.00.

The commission does not change the amount of rent the Landlord is prepared to accept. It has been agreed to and factored into the rent before marketing the property.

The Landlord broker, “Listing Agent,” agrees to share the commission with “outside agents.”

Suppose the agent/broker representing a tenant signs a lease. Most transactions include both a Landlord and Tenant broker.

Tenant Broker

Suppose a tenant uses a broker to help them find restaurants for lease and negotiate a lease. In that case, the Tenant typically gets the services for free from the Tenant’s broker.

Most experienced Tenants Brokers will require a minimum fee if the commission is too small to cover their time.

Should You Use a Real Estate Broker to Lease a Restaurant?

In most cases, using a broker will save you time, provide access to restaurants for lease that are not public knowledge, and help negotiate a better lease than you would on your own.

A few reasons to consider hiring (the right) real estate broker:

  • They have access to information that you don’t.
  • As a professional, they know more about governmental regulations, rents, and lease
  • No cost to you for their service in most cases
  • Save time

Hiring the right restaurant broker can be one of the smartest decisions you make. An experienced restaurant broker can save you thousands of dollars and ensure you avoid making mistakes that can be fatal to your success.

Restaurant properties are unique.

A good restaurant broker understands lease agreements, health department, sanitation, and building department regulations can help you avoid costly upgrades to your restaurant.

Most brokers are commercial brokers leasing property.

Find a restaurant broker that focuses on restaurant properties has and access to both restaurants for lease and commercial properties for lease.

You will be living with the terms of your lease for 5-10 years on average. Your lease will determine if you can extend your lease, sell your business, and how long you will remain liable if things don’t go as planned.

Many first-time restaurateurs ran into problems because they were unaware of the many permitting requirements to open a restaurant. Make sure your restaurant broker is knowledgeable about grease interceptors, health department permits, and parking codes.

A knowledgeable restaurant broker knows architects, attorneys, expediters, and contractors who specialize in restaurants.

Getting the Most from Your Restaurant Broker

There are a few key goals you should keep in mind when working with a restaurant broker:

  • You want to see all opportunities that meet your requirement.
  • You want the restaurant broker to negotiate in your best interest.
  • You want the restaurant broker to feel fairly compensated and motivated.
  • You want the ability to cancel the agreement if you’re not satisfied.

Should You Work with One or Many Brokers?

This answer is counter-intuitive. You would think working with many agents would provide access to more restaurants for lease.

The opposite is true.

An experienced restaurant broker won’t spend the time needed to work with you on a non-exclusive basis.

There is a high risk of not receiving compensation if you lease space through a competing agent.

This method also produces a race to “sell” you a property quickly rather than invest the time to find the right property.

Exclusive Representation to Find Restaurants for Lease

An experienced and qualified restaurant broker only works on an exclusive basis. An exclusive agreement states the broker will work on your behalf, and you will work through the broker.

You receive the attention needed. The broker has assured compensation if you complete a transaction.

Problem with Commissions

Since most restaurant brokers work on a contingency basis, they do not receive any compensation if you do not lease a property or buy a restaurant.

They are also compensated based on the total lease amount.

If your requirement is too small, you won’t find a qualified person to help.

It takes the same amount of time to lease a high rent property as it does a low rent property.

If you’re looking for short-term restaurants for lease, the commission may not justify the time involved.

There are solutions if you don’t want a broker or can’t find one.

Hourly or Flat Fee Consulting

Suppose you are willing to do the groundwork.

In that case, restaurant real estate advisors will help you negotiate a lease, protect your interests, and answer your questions for a flat rate or hourly fee.

There is a Solution—Minimum Fee

A minimum fee guarantees the restaurant broker compensation, and you receive the best deal possible.

To ensure you receive all available restaurants for lease and your restaurant broker negotiates a lease in your best interest is to agree on a minimum or flat fee.

Typically, the agreement states a minimum fee. If the total commission does not cover the price, you will pay the difference.

For example:

Minimum Fee = $10,000

Commission paid by Landlord= $8,500

Total Fee paid by Client = $1,500

Term of Agreement

If you are unhappy with your broker, don’t get locked into a long-term agreement.

Make sure you have the right to cancel the deal.

You will need to agree the broker is entitled to compensation for properties they show you for a certain period after canceling the agreement.

Still, you will be free to negotiate or work with anyone else going forward.

If you follow the suggestions above, working with a restaurant real estate broker should save you both time and money leasing or buying your next restaurant.

Contacting Landlord’s and Brokers/Agents

Questions to ask about restaurants for lease :

When you speak with a landlord or commercial real estate agent, you will need to ask specific questions.

  • Is there an existing hood system?
  • Is there a grease interceptor?
  • How much is the NNN charge?
  • How long has the restaurant been closed?
  • Are there any exclusive use clauses that prevent my use? (For example, if you sell Pizza and there is an existing pizza shop)
  • How much parking will you provide?

Depending on how well the agent understands the property, you may receive answers to your questions.

Still, often it will take research on your end to confirm some of this information.

Brokers and landlords also don’t like to make certain representations, such as warranting there is enough parking for your use.

Suppose you plan to use your broker or a restaurant real estate advisor to negotiate on your behalf.

In that case, it’s a good idea to notify the listing broker that you have representation before meeting the listing broker in person.

Calling Restaurants For Lease Signs

Driving the neighborhoods that fit your concept is a great way to learn the market and determine important factors such as traffic patterns and which areas attract the most visitors.

Unfortunately, driving and calling “restaurants for lease ” signs is time-consuming and frustrating.

If you want information such as square footage, rental rate, you will need to leave a phone number and hope you receive a return call.

To make matters worse, you won’t know which property you called about unless you keep detailed notes.

Viewing Restaurants For Lease

Before scheduling a meeting to see the inside of any restaurants for lease, it’s a good idea to drive by the property and confirm this is a location and neighborhood that meets your general criteria.

If you view a restaurant that is currently open for business, don’t ask any employees or neighbors’ questions about the property.

In most cases, the employees are not aware of it if you would like to see the interior act as a customer and order something to eat or drink.

You will need to schedule a meeting to see the kitchen and areas not visible as a customer.

Often in this situation, the existing Tenant is being forced to leave and may not be very cooperative.

Finding Restaurants For Lease-Off-Market Deals

Suppose you are looking for restaurants for lease in a particular area or type of property.

In that case, there may not be any existing restaurants for lease on the market.

In this situation, you will need to find an “off-market deal.”

You can achieve this by contacting the existing restaurant owner to see if they will consider selling.

You can approach the owner in person or try other means such as a letter or phone call.

If the owner is not interested in selling, leave your contact information and request they contact you in the future if anything changes.

Suppose the owner is not willing to sell. In that case, you can approach the property owner to determine if the lease will be expiring or is currently on a month-to-month lease.

Or, if the Tenant has a poor relationship with the Landlord, has a history of late payments, or the Landlord just wants a new concept for their property.

There are many data sources available to research the contact information for both tenants and landlords.

You found a restaurant space for lease. Time to negotiate a restaurant lease.

Leasing a Restaurant for Lease

The Lease Process for Restaurants for Lease

When you find restaurants for lease you like, it’s time to negotiate.

Before opening your new restaurant, you need to find the right restaurant for lease and negotiate a lease agreement.

The first step of the negotiations is the offer to lease, typically referred to as the Letter of Intent (LOI).

The most common process is to submit a Letter of Intent (LOI).

What is a Letter of Intent?

A letter of intent (LOI) outlines the significant deal terms of a restaurant lease agreement. Most Letters of Intent are non-binding and specify that only a mutually signed lease will bind either party.

The terms of a Letter of Intent vary greatly depending on the person’s experience crafting the Letter of Intent.

If you have been working directly with the Listing Agent, the agent will offer to draft this on your behalf.

WARNING: The listing agent represents the Landlord. You would be well advised to utilize a restaurant real estate consultant or real estate attorney familiar with restaurant leases to help you write the Letter of Intent.

Some of the terms the LOI should cover include:

Address:

The LOI should include the address, suite number. Attach a site plan depicting the space if available.

Size of Premises:

There are many different ways to measure space. The size advertised by the Landlord is often incorrect. Both parties need to agree on how the area is measured.

Term of Lease:

The term of the lease is either described in years or months. Typical lease terms include 3, 5, and 10 years.

Rent:

Rent typically describes the base rent and does not include additional charges such as percentage rent or NNN/CAM charges. The LOI will often have a rent schedule showing the monthly or annual rent per year, including any rent increases.

NNN/CAM:

Commercial properties including, shopping centers and free-standing restaurants, typically require the Tenant to pay a portion or all of the property expenses as “Additional Rent,” also commonly referred to as Triple Net “NNN” or Common Area Expenses “CAM.”

The common area expenses may include maintenance and repairs of the common walkways and parking lots, security, property management, and utilities for common areas. The Tenant will also pay their share of property taxes and property insurance.

Common area expenses or NNN charges for each year are estimated and typically paid monthly with your rent payment.

CAM is either a monthly or annual price per square foot.

For example, rent is  $2.00 per square foot with common area expenses, property taxes, and insurance estimated at $.50 per square foot.

At the end of the year, the Landlord reconciles the CAM. You owe additional money for underpayment or receive a credit.

Your “Pro Rata” share of common area expenses is your store’s size divided by the property’s total square footage.

For example, 1,000 square feet divided by 10,000 square feet equals ten percent (10%).

If you are the only Tenant and occupy a free-standing building, you will pay 100% of the common area expenses.

In summary, you need to consider the total occupancy cost rather than just focus on the rent. As you can see, common area expenses can increase the total occupancy cost required to operate your business.

WARNING! Common area expenses can increase dramatically.

 It’s essential to understand which costs can spiral out of control. For example, Property Taxes can often double when an older property has sold.

LeaseCommencement/Rent Commencement:

The lease commencement date is the date your lease starts.

The rent commencement date is the date you start paying rent.  You and the Landlord become engaged when you sign a lease, but it feels more like marriage when you start paying rent.

Tenant Improvement Allowance:

A tenant improvement allowance or TIA is a cash allowance provided by the Landlord towards the tenants’ construction.

The TIA is on a per square foot basis. For example, $20 per square foot. Some landlords will provide a flat dollar amount, such as $20,000.00.

The ability to negotiate an allowance is your financial strength and how desperate the Landlord is to lease the property.

TI’s are typically paid to the Tenant as a reimbursement once all the work is complete. The Tenant provides proof of payment to the contractors, a lien release, and copies of permits.

Rent Abatement:

Rent Abatement is a term used to describe free rent or time for “build-out.” Most landlords want to minimize the free rent period and provide a fixed number of days.

Many restaurateurs don’t complete their build-out in the time provided. Whenever possible, start the free rent period from receipt of permits to start construction.

Options to Extend:

Option periods or extensions allow you to exercise an option to extend the lease. Typically, the option period will coincide with the original lease term. For example, a 5-year lease may have a 5-year option to extend.

It’s best to negotiate the rental rate during the option in advance. The lease will include specific time frames required to “exercise” the option.

WARNING: Negotiating option periods is one of the most overlooked areas in lease negotiations. Most options are personal to the Tenant.

You want the right to assign the options if you sell the business and transfer the lease in the future.

Assignment Rights:

The assignment and subletting provision in your lease is one of the most critical conditions and often given little attention.

The assignment provisions cover your right to assign the lease to another person. The person transferring the lease is the “Assignor,” and the person receiving the lease is the “Assignee.”

Why do you need assignment rights?

There are many reasons you may need to assign your lease to another party:

  • You’re selling the business.
  • You’re selling your shares of the business to your partner.
  • You wish to close the business and want to terminate your obligation to pay rent.
  • What are the key concerns as a business owner regarding the assignment?

There are numerous strategies to provide flexibility and reduce risk should you need to assign your lease.

Landlords Delivery Condition:

One problem restaurateurs often run into is the vague or confusing language describing what they are leasing from the Landlord.

It is often the case when it comes to the “Landlord’s Work Letter.”

But often, the restaurateur cannot be sure about the condition, and utilities included as part of the premises.

The lack of clarity can create additional expenses, delays, and disputes between the Landlord and

This description often uses industry jargon that may not be understood by the Landlord or Tenant.

Often a work letter is described as a “gray shell” or “vanilla shell.” In some properties, the Landlord delivers the space in “as-is” and “where-is” condition.

What’s the difference between a gray shell or a vanilla shell?  A gray shell lacks certain items, which requires more work by the Tenant to bring the space into a finished state.

A gray shell does not include a ceiling, only a partially completed concrete floor or no floor, no electrical wiring inside the space, and no lighting.

A vanilla shell is typically a space that would be in move-in ready condition. The area would include a ceiling, lighting, electrical outlets, three walls, and a storefront.

It’s all in the details.

Suppose you are negotiating to lease a restaurant. In that case, it’s essential to have a clear understanding of the premises’ current condition and what will be provided by the Landlord.

You need to know whether you are getting a gray shell or vanilla shell, and more.

In most cases, the LOI is non-binding on either party and used as an outline to prepare a lease.

WARNING: Until both, you and the Landlord have signed binding the lease, the Landlord can lease the space to another party.

Negotiating a Letter of Intent can take a few days to many weeks, depending on the Landlord and how hard both parties negotiate.

Why Use a Letter of Intent to Negotiate Restaurants for Lease

As you can see, the Letter of Intent can cover many issues. An appropriately crafted Letter of Intent can provide protections against problems beyond your control, such as permitting delays, as well as provide an exit strategy for the future.

How to Create a Good Letter of Intent for Restaurant Lease

Before starting your negotiations, you should know the deal terms that are critical for your success.

The more you know and plan for in advance, the better your chances of negotiating a strong lease.

A detailed Letter of Intent can save you thousands in legal fees during lease review by negotiating key business issues upfront.

A Letter of Intent can save you hours of money by flushing out issues before drafting a lease agreement.

An experienced real estate advisor or real estate attorney can protect you from the many minefields hidden in most restaurant lease agreements.

In most cases, the LOI is non-binding on either party and used as an outline to prepare a lease.

Restaurant Lease Agreement

Once you have an agreed-upon LOI, the Landlord will prepare a draft lease for your review.

The lease will include all the terms outlined in the LOI and additional legal language covering many more items that are typically not discussed during the LOI stage.

Lease agreements range from just a few pages to more than 150 pages in length.

Lease negotiations can take anywhere from a few days to a month.

WARNING: This is a legal document.

Many restaurateurs cut corners at this stage to save money. Utilizing a real estate attorney specializing in commercial lease agreements and restaurant use can pay big dividends in the long run.

WARNING 2: Avoid using your family attorney. Most are not familiar with commercial leases. You will most likely spend thousands of dollars and wind up with a lease the Landlord will not accept.

Lease negotiations are either handled directly between the Landlord and the Tenant (sometimes with the broker/agent as the middle man) or between the landlords’ attorney and the tenants’ attorney.

Restaurants for Lease-How to Protect Yourself When Negotiating a Landlord’s Work

The best course of action is to involve a contractor and architect if you are building from scratch or undergoing a significant remodeling project.

Suppose the Landlord is delivering an existing space in as-is condition. In that case, you need your contractor to verify that the current utilities suit your needs.

A few items to pay special attention to are:

  • Is there enough HVACfor restaurant use? Restaurants often need more HVAC than a retail store.
  • Is there enough electricity, water, and gas available? Upgrading electricity can be costly if there is not enough power available to the property.

The contractor and architect should help you understand the condition of the premises the Landlord will deliver and provide cost estimates for your portion of the work

Suppose you are leasing an existing restaurant space. In that case, the Landlord will typically rent the space in as-is condition and not warrant any equipment.

Suppose you are leasing a space in a new development. In that case, it’s imperative to draft a concise and detailed Landlord description of work.

Permitted Use

The permitted use clause describes what uses you will be allowed to operate. The Landlord will try to limit the use as much as possible.

Exclusive Use Clause

The exclusive use clause restricts the Landlord from leasing other property spaces to a tenant that competes directly with you.

Personal Guaranty for Restaurant Lease

What is a personal guaranty for a restaurant lease?

A personal guaranty is a security instrument whereby the person is signing the guaranty, and the “Guarantor” remains liable for the restaurant’s monetary obligations.

Suppose you operate your business as a corporation or limited liability company and wish to lease commercial real estate. In that case, the property owner will often require a personal guaranty.

How do you protect yourself when signing a personal guaranty?

There are different methods to reduce your risk exposure with a personal guaranty.

Lease Signing

The final lease agreements are prepared for signature once all terms have been agreed upon by both parties.

The Landlord’s agent or attorney will either send hard copies for the Tenant’s signature or arrange for both parties to meet and sign together.

You can expect to sign two to four copies depending on how many parties were involved in the transaction. The Landlord, Tenants, and brokers, if any, will each receive a fully signed copy for their records.

At this time, you will deliver a cashier’s check made to the Landlord for the first month’s rent, NNN, and security deposit

The Landlord will also require you to provide proof of liability insurance naming the Landlord as an additional insured.

You should arrange insurance during the lease negotiation period.

Suppose the space is vacant, and the Landlord is not responsible for any work before delivering the premises.

In that case, you may receive the keys when you sign the lease and provide proof of insurance.

Suppose the premises are delivered later, perhaps after the Landlord completes the Landlord’s work.

If the Landlord was responsible for work, you and your contractor should walk the space to confirm all work is complete.

If any work is not complete or not done correctly, provide a punch-list of items to fix or complete is provided to Landlord.

It is a good idea to utilize an amendment such as a Letter of Lease Commencement, so there are no discrepancies about the lease’s start date.

Congratulations! If you have read this guide you are well on your way to looking at restaurants for lease and negotiating a lease from a position of strength. If you found this information helpful or have any questions please leave a comment or send me an email.

How to Lease a Restaurant–Summary

  1. Your Business Plan is Your Roadmap


    The main ingredients are 
    1)    Your concept and menu
    2)    Know your target customers
    3)    Analyze your competition
    4)    Determine how much rent you can afford
    5)    Understand your start-up costs
    Create Business Plan

  2. Determine Your Trade Area

    A restaurant’s trade area is the geographic area that contains 75 to 90 percent of your customers.

    The ideal trade area includes the right number of people who match your customer profile, the right amount of competition, your position to your competition, and the perceived convenience of visiting your business in the eyes of your potential customers.Trade area for restaurant

  3. Restaurants for Lease Site Considerations  

    The main considerations are traffic generators, visibility and access. Most businesses’ primary traffic generators consist of employment centers, residential neighborhoods, shopping, commuter traffic, and entertainment.

    Your restaurant should be visible and easy to access.

  4. Restaurants for Lease-Property Types for Restaurants

    You can locate your restaurant in various property types such as neighborhood center, strip center, power center, mall, free-standing building and mixed-use property.

  5. Types of Restaurant Spaces for Lease

    You have a choice between a Pad, end-cap, inline, and elbow space. If possible choose the pad or end-cap.

  6. How to find Restaurants for Lease

    You can find restaurant spaces for lease using the internet, a restaurant real estate broker, for lease signs, and contact restaurant owners to find off-market deals.The Ultimate Loopnet.com Tutorial for Restaurateurs

  7. How to Negotiate a Lease

    Once you find a space you will submit a Letter of Intent to lease. In addition, you will submit financial information about the business and the owners of the business.
    The landlord will provide a lease for review upon mutual agreement of the Letter of Intent (LOI).negotiate restaurant for lease

  8. The Landlord Will Deliver the Premises

    Upon mutual signing of the lease agreement and the landlord’s completion of work if applicable, the landlord will deliver the premises.
     landlord delivery of restaurant space

Filed Under: Uncategorized

Restaurant for Sale-The Sellers Guide to Making the Sale

December 29, 2020 by Mark Chase Leave a Comment

Restaurants for Sale The Sellers Guide to Making the Sale

Restaurant for Sale-The Sellers Guide to Making the Sale

Before listing your restaurant for sale, you need to have your ducks in a row.

Selling your restaurant is similar to cooking: For the best results, follow a proven recipe.

The French phrase mise en place,  “Putting everything in its place,” is just as relevant when selling your restaurant as it is in your kitchen.

Careful preparation and order are critical to a smooth restaurant sale.

Restaurant for Sale-The Sellers Guide to Making the Sale breaks down the process needed to market your restaurant and close the deal.

Table of contents

  • Restaurant for Sale-The Sellers Guide to Making the Sale
  • Chapter 1: Pre-Sale-Getting prepared to list your Restaurant for Sale
    • Seller’s Disclosure Statement for Restaurant for Sale
    • List of Assets included in Restaurant for Sale
    • Lease Abstract for Your Restaurant for Sale
    • Lease Assignment
    • Options to Extend
    • Use Clause
    • Red Flags
    • WARNING
    • Sample Lease Abstract of Restaurant for Sale
    • Prepare Documents
    • Contact Information
    • Summary
      • Sellers Disclosure Statement
      • List of Assets
      • Lease Abstract
      • Prepare Documents
      • Contact Information
    • Congratulations
  • Chapter 2: Marketing Your Restaurant for Sale
    • Determine Key Selling Points of a Restaurant for Sale
    • Location.
    • Scarcity.
      • Here are some examples of key selling points.
    • Unique Features.
    • Below-market lease.
    • Determine your Price
    • Restaurant for Sale Valuations
    • Pricing Assets of Your Restaurant for Sale
      • Market forces determine the sales price of a restaurant for sale.
    • Restaurant for Sale Comparable Sales 
    • Get Show Ready
    • Photos/Video
    • TIP!
    • Google “Lighting Tips for Real Estate” or “Lighting Tips for Restaurants”
    • Sales Copy to Advertise Your Restaurant for Sale
    • Marketing Brochure/Executive Summary
    • Where to Advertise Your Restaurant for Sale
    • Should you cooperate with Brokers if You List Your Restaurant for Sale by Owner?
    • Hiring a Restaurant Broker to Market Your Restaurant for Sale
    • Summary
      • Determine Key Selling Points to Advertise Your Restaurant for Sale
      • Determine your asking price
      • Get show ready
      • Photos/Video
      • Sales Copy to Advertise Your Restaurant for Sale
      • Marketing Brochure/Executive Summary
      • Where to Advertise Your Restaurant for Sale
      • Brokers
      • If you’ve completed all the previous steps, you’ve:
    • Congratulations!
  • Chapter 3: Working with Buyers after Listing Your Restaurant for Sale
    • Screening prospective restaurant buyers
    • What is a Non-Disclosure Agreement?
    • Keep Track of Prospects Selling a Restaurant
    • Pre-Meeting
    • Meeting with Prospects
    • Showing Your Restaurant for Sale
    • Summary
      • Screening Potential Buyer
      • Non-Disclosure Agreement
      • Keep Track of Prospects
      • Pre-Meeting
      • Meeting with Prospects
      • Showing Your Restaurant for Sale
    • Congratulations!
  • Chapter 4: Negotiating the Deal for Your Restaurant for Sale
    • How to Handle Lowball Offers and Criticism when Marketing Your Restaurant for Sale
    • Deal Terms
    • Preparing the Offer
    • Letter of Intent
    • Purchase and Sale Agreement
    • Which should you use?
    • Proof of Funds
    • Pre-Escrow Period
    • Physical Inspection
    • Lease Assignment/ New Lease
    • Congratulations!
  • Chapter 5: Escrow the Final Stage to Close Your Restaurant for Sale
    • What is Escrow?
    • Escrow Fees to Close a Restaurant for Sale
    • Opening Escrow
      • SAMPLE SUPPLEMENTAL ESCROW INSTRUCTIONS
    • Escrow will require the following information from the Seller and Buyer:
    • From BUYER:
    • What Happens in Escrow?
    • Bulk Sale Notice Requirements
    • Tax and Lien clearances
    • State Board of Equalization
    • WARNING:
    • UCC Search & Tax Lien Search
    • Bill of Sale.
    • Closing Statement.
    •  Promissory Note.
    • Inventory.
    • Liquor license transfer.
    • Congratulations on the successful sale of your restaurant!

Chapter 1: Pre-Sale-Getting prepared to list your Restaurant for Sale

In this first stage of the sales process, you’ll:

  • Complete a Seller’s Disclosure Statement
  • List the assets of your restaurant for sale
  • Review your lease for relevant clauses that could impact your sale
  • Gather and prepare all vital documents
  • Establish a confidential way for buyers to contact you.

Compiling this information is the most time-intensive part of the sales process, but following these steps now will save you a lot of time later.

By the end of this section, you’ll have your documents prepared, and you’ll be ready to begin marketing your restaurant for sale.

Let’s get started.

Step 1

Seller’s Disclosure Statement for Restaurant for Sale

The purpose of the Sellers Disclosure Statement is to inform prospective buyers about your restaurant for sale.

The Sellers Disclosure Statement will clarify what representations you’ll make regarding the business.

SELLER DISCLOSURE FORM

Get your Seller Disclosure Statement Here

Step 2

List of Assets included in Restaurant for Sale

The Asset List itemizes which assets the buyer can expect from your restaurant sale. Providing the asset list upfront prevents tense last-minute renegotiations over assets that the buyer believed were included in the sale.

You don’t need every little detail, but a simple description of each item and its make or model is helpful. This list is also useful if you need to justify the value of the assets — you can quickly contact equipment vendors to price similar new and used equipment.

Restaurant for Sale ASSET AND EQUIPMENT LIST

Get Your Asset and Equipment List Here

Step 3

Lease Abstract for Your Restaurant for Sale

A Lease Abstract is providing a summary of the essential terms of your Lease Agreement. It will be included in your marketing package and is also useful to quickly answer questions about your Lease Agreement.

This step requires special attention, because the lease agreement is one of the most critical items considered by buyers, and one of the biggest reasons restaurant sales fall apart.

Carefully read your Lease Agreement and create a Lease Abstract using the sample below.

Do not skip this step! You need to know in advance if any items in the contract will prevent the sale of your business or impact the price.

There are a few vital lease clauses that can impact your ability to sell your restaurant and the price you receive.

Lease Assignment

Review this clause carefully. Do you have the right to assign the lease? Can the landlord deny your request for any reason? Is there a clear formula describing the landlord’s criteria for approving or disapproving a buyer?

Options to Extend

Many sellers list their restaurant for sale near the end of their lease term and tell potential buyers they have several options to extend their lease.

Your contract might include a clause that states, “Options are Personal to Tenant.”

If your lease includes this clause, the landlord can void the options if you sell your business. It’s critical to know this before marketing your restaurant for sale.

Use Clause

Most leases spell out the permitted uses allowed per your tenancy.

If your use clause is particular and you occupy a space in a shopping center with many other restaurants, this may limit the type of restaurant a potential buyer will be allowed to operate.

You need to know this upfront, so you don’t spend weeks or months negotiating with a prospective buyer to determine later their use is not allowed.

Red Flags

If you run into any of the red flags listed when reviewing your lease, you will need to take action in advance to see if you can resolve the issues.

At this stage, if you are confused about your options, you may want to hire an experienced restaurant real estate advisor or commercial real estate attorney to review the specific clauses and advise you on your options.

You can also approach the landlord, explain that you wish to sell your restaurant, and ask if they will amend the lease and work with you if you secure an acceptable buyer.

WARNING

Many landlords will try to renegotiate other lease terms, such as the rent. You may need to make some concessions to receive their cooperation.

Sample Lease Abstract of Restaurant for Sale

Lease abstract:

Size: 1,840 sf

Patio size: 485 sf

Lease term: 10 years

Lease Commencement Date:

Rent Commencement Date: July 2017

Initial Term:

Lease Year 1: $8,126.67 per month

Lease Year 2: $8,370.47 per month

Lease Year 3: $8,621.58 per month

Lease Year 4: $8,880.23 per month

Lease Year 5: $9,146.64 per month

Lease Year 6: $9,421.04 per month

Lease Year 7: $9,703.67 per month

Lease Year 8: $9,994. 78 per month

Lease Year 9: $10,294.62 per month

Lease Year 10: $10,603.46 per month

Extended Term:

Lease Year 11: the greater of (i) current market rent as determined in accordance with Paragraph 1 to Rider No.1 and (ii) $11,133.63

Lease Year 12: monthly Minimum Rent due and owing in Lease Year 11 increased by three percent (3%)

Lease Year 13: monthly Minimum Rent due and owing in Lease Year 12 increased by three percent (3%)

Lease Year 14: monthly Minimum Rent due and owing in Lease Year 13 increased by three percent (3%)

Lease Year 15: monthly Minimum Rent due and owing in Lease Year 14 increased by three percent (3%)

CAM: $2,459.00

SECURITY DEPOSIT: $9,966.67

PERCENTAGE RENT RATE: five percent (5%)

EXISTING EXCLUSIVES

The following is a summary of the exclusives at the Shopping Center as of the date of the Lease.

Pita Pita. Landlord shall not, during the Term of this Lease, hereafter lease any premises in the Shopping Center for the operation during the Term of this Lease of a restaurant primarily serving Mediterranean-style cuisine (a “Competing Business”). Any such lease entered into by Landlord is herein referred to as a “Competing Lease”. “Primarily serving” means that at least twenty percent (20%) of such restaurant’s sales are derived from items of Mediterranean-style cuisine.

Noodles & Company. During the Term, Landlord shall not lease to a Competing Use (as herein defined) in the Shopping Center As used herein, a “Competing Use” is a restaurant selling noodles and/or pasta or noodle dishes and/or pasta dishes for on or off-premises consumption, provided, however that if the gross sales of noodles, pasta, noodle dishes or pasta dishes by any such restaurant does not exceed, in the aggregate in any single year, twenty percent

(20%) of the annual gross sales of such a restaurant, such a restaurant shall not be deemed a Competing Use.

Step 4


Prepare Documents

Just like the steps above, a little preparation on your part will significantly increase the speed of the transaction. Gather the following documents:

  • Lease and any amendments to lease
  • Licenses
  • Permits
  • Architectural plans
  • Certificate of occupancy
  • Conditional Use Permit

Photocopy or scan any materials that may be requested by a potential buyer or transfer with the restaurant for sale. Scanned documents are preferable.

Nobody wants to search through their garage or old file cabinets for hours when a potential buyer requests a vital document.

Copy all your materials ahead of time so that you can provide them quickly and easily.

Note: Do not provide original architectural plans, licenses, or permits to any prospective buyers. If requested, make copies and keep the originals until the close of Escrow.

Step 5

Contact Information

You need a confidential way to communicate with potential buyers without disclosing the name or location of the business until you give your approval.

Do not use your work email address or phone number.

If you do not have one already, set up a free email account, do not include your business name in your email address. If you plan to include a phone number, use your cell phone.

Summary

Sellers Disclosure Statement

The Sellers Disclosure Statement will clarify what representations you’ll make regarding the restaurant for sale.

List of Assets

The Asset List itemizes which assets included in the restaurant for sale.

Lease Abstract

A Lease Abstract is a summary of the essential terms of your Lease Agreement.

Prepare Documents

Gather all of the following documents and make copies or scan into digital documents:

  • Lease and any amendments to lease
  • Licenses
  • Permits
  • Architectural plans
  • Certificate of occupancy
  • Conditional Use Permit

Contact Information

You need a confidential way to communicate with potential buyers without disclosing the name or location of the business until you give your approval.

If you do not have one already, set up a free email account, do not include your business name in your email address. If you plan to include a phone number, use your cell phone.

Congratulations

If you’ve completed all previous steps, you’ve already finished the most time-intensive part of the sales process.

Let’s move on to Chapter 2: Marketing Your Restaurant for Sale.

Chapter 2: Marketing Your Restaurant for Sale

Now that you’ve gathered and completed vital documents about your business, you’re ready to begin advertising your restaurant for sale to potential buyers.

Your restaurant has a unique advantage — at least one — that could make it attractive to prospects. To command the highest possible price for your restaurant, you’ll want to identify its appealing qualities and communicate them to potential buyers.

This chapter will help you:

  • Determine your restaurant’s key selling points
  • Set your price, and justify that price to buyers
  • Write an ad that attracts attention from serious, qualified prospects.
  • Make a great first impression with buyers by preparing to show your restaurant for sale.
  • Publish your restaurant for sale on popular, high-traffic websites

By the end of this section, you’ll be ready to begin taking calls or emails from prospects interested in your restaurant for sale.

Step 1

Determine Key Selling Points of a Restaurant for Sale

What makes your restaurant unique or special? Why did you pick this location when you first built or purchased your restaurant?

Many factors impact the value and location of a restaurant.

These factors include:

Location.

What is attractive about your site?

Visibility, easy access, parking, signage.

Is the area close to traffic generators such as office buildings, entertainment, and significant retail draws?

Scarcity.

Are there other comparable restaurants available in the area? How difficult would it be to build a new restaurant?

Here are some examples of key selling points.

  • The restaurant has grandfathered status and could not be built today for various reasons, such as the building does not meet today’s parking codes and would not be allowed.
  • The restaurant has a difficult-to-secure liquor license that offers advantages such as service until 2:00 am or “live entertainment.”
  • There are moratoriums on new restaurants or bars in the area. If the City will not allow any new competitors in the area, your restaurant’s value is increased by scarcity. Your restaurant for sale is the only game in town.

Unique Features.

Your restaurant has a view, outside patio, or other features not readily available in the neighborhood.

Below-market lease.

For example, maybe the typical market rents in the area are $5.00 per square foot, but your rental is for ten years at $2.00 per square foot.

List your key selling points.

List every key selling feature you believe adds value to your location.

Step 2

Determine your Price

Similar to the real estate market, there are three ways to value a restaurant for sale:

  • Income approach
  • Comparable approach
  • Cost approach

Restaurant for Sale Valuations

Restaurants for sale are typically purchased for their current cash flow or purchased as an “asset sale”. Use the following methods if:

  • You can’t show positive cash flow, or
  • You don’t want to disclose financial information, or
  • You are selling to a buyer that plans to convert your restaurant to their use.

Pricing Assets of Your Restaurant for Sale

You should be aware of the “New Car Effect.” As soon as you drive a new car off the lot, its value decreases. Unfortunately, the same is true for certain aspects of your restaurant.

Buyers aren’t interested in how much you paid for your equipment or build-out when it was new. Instead, buyers wish to pay according to the current condition of what they’re buying.

Here are a few items you can use to justify the price of your restaurant for sale, assuming the buyer or City requires them:

  • Cost to install a hood system
  • Cost to install a grease interceptor
  • Cost-saving in time for permitting and construction
  • Cost of a new liquor license if available
  • Time and cost of Conditional Use Permit for Liquor License
  • Below market lease. How much rent will buyers save over five years?
  • Value-based on a moratorium against more restaurants/bar

Market forces determine the sales price of a restaurant for sale.

If you are selling based on your income, you can value the business based on a multiple of either the adjusted cash flow method or percentage of the gross sales.

For example, if your adjusted cash flow is $50,000 per year and restaurants sell for 2.5 times net cash flow, the value of the restaurant is $125,000.

If you can’t show positive cash flow, but your sales are $500,000 per year, you may price your restaurant at a percentage of the sale.

If similar restaurants sell for 25% of sales, your restaurant would be worth $125,000. ( $500,000 x .25)

Note: If you’re selling a profitable restaurant based on income, you may wish to retain a restaurant broker experienced in selling ongoing businesses or work with your Certified Public Accountant to prepare financial statements and determine the value of the company.

Restaurant for Sale Comparable Sales 

If you are unsure of how to price your restaurant for sale, you can request an opinion of value from a business broker or find information about recent sales on websites such as bizbuysell.com.

Step 3

Get Show Ready

Have you ever shopped for a new home? You have undoubtedly heard the term “curb appeal.”

A properly staged home sells faster and at a higher price than the unkempt, funky smelling house listed down the street.

What is the buyer’s first impression of your restaurant? If the ceiling tiles are stained and the kitchen is not clean, it won’t be a good impression.

Before marketing your restaurant, fix any broken items, and thoroughly clean the entire restaurant front top to bottom.

Photos/Video

A picture is worth 1,000 words.

Quality photographs will significantly increase the number of prospects requesting additional information about your restaurant for sale as well as answer questions about the kitchen.

TIP!

Google “Lighting Tips for Real Estate” or “Lighting Tips for Restaurants”

Include photos of the kitchen and individual images of equipment and storage areas. Be sure to CLEAN the kitchen and restaurant before shooting pictures. If needed, hire a professional photographer to photograph.

Warning: be sure to remove any items that would disclose your location, such as the name of the restaurant or other things that identify the restaurant.

There are many free photo editing programs available.

Step 4

Sales Copy to Advertise Your Restaurant for Sale

Effective copywriting paints a picture of the benefits the buyer will receive. Use the critical selling points above to describe the benefits of purchase to your buyer.

  • Rare opportunity to purchase a restaurant in this high demand neighborhood
  • Below the market, The lease rate provides a competitive advantage.
  • Turn-key restaurant for less than 10% of the cost to build new

You want to give enough information to generate interest from the right buyers. If you can do so without divulging your actual location, list the City or neighborhood.

Marketing Brochure/Executive Summary

Create a flyer or executive summary highlighting the main selling points such as the lease terms, size of the restaurant, and asking price.

You can create a flyer for free using https://www.canva.com

You also create a Business Summary the provides all the details in an easy-to-read format.

Restaurant for Sale BUSINESS SUMMARY FORM

Get Your Business Summary Template Here

Step 5

Where to Advertise Your Restaurant for Sale

There are numerous sites to advertise your restaurant for sale.

Here is a list of both general business for sale websites and restaurant-focused sites.

Their average monthly traffic varies, so check their monthly number of visitors compared with the cost per month to advertise. Most of these sites cover a broad range of businesses, so the amount of traffic for restaurants in your area may be substantially less.

Should you cooperate with Brokers if You List Your Restaurant for Sale by Owner?

Brokers can be a good source of buyers.

This decision comes down to how much money you need to achieve from the sale. Commissions are negotiable by law, but you can expect to pay 5% of the sales price to a real estate or business broker if they procure a buyer.

You should sign a single party commission agreement with the broker, which limits the payment of a commission to a specific registered buyer.

Hiring a Restaurant Broker to Market Your Restaurant for Sale

If you would like professional help marketing your restaurant for sale and handling the entire process you have a few choices. Learn more about working with real estate brokers.

Summary

Determine Key Selling Points to Advertise Your Restaurant for Sale

What makes your restaurant unique or special? Why did you pick this location when you first built or purchased the restaurant?

Determine your asking price

Here are a few items you can use to justify your price, assuming the buyer or City requires them:

  • Cost to install a hood system
  • Cost to install a grease interceptor
  • Cost-saving in time for permitting and construction
  • Cost of a new liquor license if available
  • Time and cost of Conditional Use Permit for Liquor License
  • Below market lease. How much rent will buyers save over five years?
  • Value-based on a moratorium against more restaurants/bar

Get show ready

Before marketing your restaurant for sale, fix any broken items, and thoroughly clean the entire restaurant front top to bottom.

Photos/Video

A picture is worth 1,000 words.

Quality photographs will significantly increase the number of prospects requesting additional information.

Sales Copy to Advertise Your Restaurant for Sale

Effective copywriting paints a picture of the benefits the buyer will receive. Use the critical selling points above to describe the benefits of purchase to your buyer.

Marketing Brochure/Executive Summary

Create a flyer or executive summary highlighting the main selling points such as the lease terms, size of the restaurant, and asking price.

Where to Advertise Your Restaurant for Sale

Pick one or two high traffic websites and list your restaurant.

Brokers

If you decide to work with Brokers, sign a single party commission agreement with each broker, which limits the payment of a commission to a specific registered buyer.

If you’ve completed all the previous steps, you’ve:

  • Identified your key selling points
  • Your restaurant for sale is in show-ready condition.
  • You have attractive photographs or video ready.
  • Crafted an eye-catching ad
  • Listed your restaurant for sale on one or more high traffic sites

Congratulations!

Let’s move on to Chapter 3:Working with Buyers after Listing Your Restaurant for Sale

Chapter 3: Working with Buyers after Listing Your Restaurant for Sale

In Chapter One, you prepared all the documents you needed to begin offering your restaurant for sale.

In Chapter Two, you wrote an informative ad and began marketing your restaurant for sale.

At this point in the sales process, you should soon begin to receive emails or phone calls from prospective buyers.

In this chapter, you will:

  • Safeguard your time and energy by screening potential buyers
  • Invite qualified, serious buyers to view your restaurant at its best
  • Schedule walk-throughs that inspire competition between bidders
  • Prepare and rehearse your answer for the most robust question buyers will ask.

Once you’ve moved through the steps outlined in this section with a serious prospect, you’ll be ready to begin the actual sales negotiations.

Let’s begin.

Screening prospective restaurant buyers

The purpose of your first contact with potential buyers is to judge whether they’re qualified. Don’t waste your time with tire-kickers and unqualified buyers.

At this stage, prospective buyers won’t hand over a financial statement. However, you can still determine if they’re qualified by asking questions and requiring them to sign a non-disclosure agreement.

The best approach is to tell them that the landlord needs to approve the buyer wand before spending too much time. You want to make sure they meet the minimum requirements of the landlord.

If you’re selling for all cash, you want to determine if they have the funds to buy your restaurant. You can phrase it this way: “The landlord has minimum cash in the bank requirement. How much cash can you show in your bank accounts?”

Ask them about their concept and experience in the restaurant business or general business experience. Again, you can explain the landlord has ‘specific requirements and that you don’t want to waste either party’s time.

If they provide satisfactory answers, ask them to sign a non-disclosure agreement. This added hurdle may frustrate the buyer, but the majority of sellers and business brokers require them. If they are serious, they should be willing to sign the non-disclosure.

What is a Non-Disclosure Agreement?

A non-disclosure agreement (NDA), also known as a confidentiality agreement (C.A.), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (S.A.), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share for specific purposes but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement.

TIP: To speed up the process, use a service such as DocuSign to accept digital signatures.

Restaurant for Sale NON DISCLOSURE FORM

Get Your NDA Template Here

Keep Track of Prospects Selling a Restaurant

It’s easy to lose track of prospective buyers during the marketing process. A prospect that does not seem like a good fit today may be a real buyer next month. Keep track of everyone that inquires about your restaurant for sale.

Use the following spreadsheet. Fill-in their name, contact information, and brief description about them based on your communications. If circumstances change, such as a price reduction, go through the list and contact each prospect again to see if they may reconsider your restaurant.

BUYER CONTACT LIST FORM

Get Your Buyer Template Here

Pre-Meeting

Once you receive the potential buyer’s signed non-disclosure agreement, you can provide the restaurant’s address to your prospect.

Before signing the non-disclosure, the buyer knows very little about your location.

It’s a good idea to have the prospect drive to the site and take a look as a customer. If they like the place, you can schedule a meeting to show them the entire space, including the kitchen.

If you are busy at certain times of the day, suggest they stop by at those times so they can get a feel for the traffic.

Nothing sells a restaurant more than foot traffic and customers.

Remind the prospects not to ask any questions or discuss the sale with your employees.

You will recognize potential buyers as they stand outside looking at your restaurant or how they look around as they order a meal or drink.

Meeting with Prospects

After the initial drive-by, most prospects will need to see the space in more detail before making an offer.

It’s best to schedule a walk-through when you are slow and will not be distracted with running your business.

If you are very sensitive about your employees learning the restaurant is for sale, you can limit showings to early morning or after closing.

If you have multiple prospects interested, it’s a good idea to schedule a showing with more than one candidate to create a sense of demand and competition.

Showing Your Restaurant for Sale

Be prepared to answer questions and try to understand the prospective buyer’s perspective. “If your restaurant is such a great place,” they may ask, “Why are you selling?”

Practice your response to this question and have an answer prepared.

“Retirement” and “I’m moving out of the state” are better answers than “I want to focus on my other more profitable restaurants.”

Be as open as possible, but avoid getting into too much detail about financial operations if you are selling the restaurant for its assets. You should answer questions truthfully and don’t make any misrepresentations.

Let the buyers know that upon acceptance of an offer, they will have time to inspect the premises and review the lease agreement and any other information you have available.

Highlight the key selling features that you’ve identified, such as: “I have been told it’s almost impossible to get this type of liquor license in this neighborhood” or “The vacancy rate in this area is almost zero. It’s very hard to find a place to rent, and I have a below-market lease.”

Don’t oversell, and let the prospect do most of the talking if possible. Let the buyer know you are happy to answer any questions they may have.

Summary

Screening Potential Buyer

The purpose of your first contact with potential buyers is to judge whether they’re qualified. If they are qualified, send a Non-Disclosure Agreement.

Non-Disclosure Agreement

By signing a non-disclosure agreement, a Buyer agrees not to disclose any confidential information about the business or sale.

Keep Track of Prospects

Keep track of everyone that inquire’s about your restaurant using the prospect tracking sheet.

Pre-Meeting

Once you receive the potential buyer’s signature on a non-disclosure agreement, you can provide the restaurant’s address to your prospect.

Have the prospect drive to the site and take a look like a customer. If they like the location, you can schedule a meeting to show them the entire space, including the kitchen.

Meeting with Prospects

Most prospects will need to see the space in more detail before making an offer. It’s best to schedule a walk-through when you are slow and will not be distracted with running your business.

Showing Your Restaurant for Sale

Be prepared to answer questions and try to understand the prospective buyer’s perspective.

Answer questions truthfully and don’t make any misrepresentations.

If you have completed the steps above, you are now closer to receiving an offer to purchase or have learned what issues may be preventing buyers from taking the next level. Some problems you may be able to address may include the perceived value compared with your asking price.

Congratulations!

Let’s move on to Chapter 4: Negotiating the Deal for Your Restaurant for Sale

Chapter 4: Negotiating the Deal for Your Restaurant for Sale

In the previous section, you screened potential buyers, invited qualified buyers to visit your restaurant, and walked them through the property.

This next section guides you through the process of preparing to sell your restaurant to a seriously interested buyer. In this section, you will:

  • Prepare for a common negotiation tactic that buyers use
  • Learn a valuable tactic for achieving your desired price
  • Acquire all necessary documents that begin formalizing your sale
  • Open Escrow

How to Handle Lowball Offers and Criticism when Marketing Your Restaurant for Sale

Rule #1: Don’t take negotiations personally. There is a good chance you will receive some lowball offers and possibly some negative remarks about your restaurant to justify the buyer’s low offer.

Deal Terms

Price is only one of the deal terms you will need to agree on with the buyer. Depending on your situation, a short escrow and being released from your lease obligation may be more important than price.

If you are having trouble achieving your price, you may consider providing financing for part of the sale to meet a higher sale price.

For example, if you want $125,000 and the buyer only has $100,000 available, you can offer to provide a loan of $25,000.00 to be paid over 12 or 24 months.

In this situation, you will want a lien on the equipment, and there is still a risk that the buyer could default before you get paid in full.

But if you collect payments for 12 months, you will make more money than accepting the buyer’s current offer of $100,000.00. Also, you will have a lien on the assets.

Preparing the Offer

The purchase process starts when you receive an offer to purchase your restaurant.

There are two types of offers.

Letter of Intent

A Letter of Intent is typically a non-binding agreement used to summarize the basic deal terms incorporated into a Purchase Agreement.

Purchase and Sale Agreement

A Purchase and Sale Agreement is typically a binding document and used as the basis to prepare escrow instructions in states that use Escrow.

Which should you use?

A Letter of Intent is best if you would like to start the process without incurring escrow fees.

The Letter of Intent should require both the Seller and Buyer to complete certain items before entering into a binding agreement or opening escrow.

The Letter of Intent is used to complete investigations before signing a binding contract and incurring expenses.

If you are working directly with a buyer, there is a good chance they will not have experience writing a Letter of Intent.

You can request that the buyer send an overview of terms, price, length of Escrow, and any other conditions required. Once you receive the terms, you can complete a Letter of Intent (LOI) or a formal Purchase and Sale Agreement.

See the sample Letter of Intent below.

Restaurant for Sale LETTER OF INTENT TO PURCHASE FORM

Get Your LOI Template Here

Prepare two originals for signature by both Buyer and Seller.

Proof of Funds

Before opening Escrow, verify that the buyer has enough funds available to complete the sale. Ask for a recent bank statement or contact at their bank.

Pre-Escrow Period

The Letter of Intent should require the buyer to complete their physical inspections, review of the financial condition of the business if applicable, and approve the Lease agreement.

Physical Inspection

The buyer should conduct a physical inspection of the premises as soon as possible. Issues related to the condition of the Premises or equipment can be a reason to request a price reduction.

The buyer should provide written approval of the condition of premises and equipment. You can agree to fix any problems, give credit to the buyer for repairs, or hold firm on the sale price.

At this point, either the Buyer or Seller (or both) can decide not to move forward with the sale.

Also, it’s a good idea to require the buyer to submit all the information needed for the landlord to approve a Lease assignment or new lease.

Lease Assignment/ New Lease

The sale will require that you either assign your current lease to the buyer or that the landlord and buyer negotiate a new contract. The landlord will need to approve the buyer.

Notify the landlord and request an assignment of lease (or a new contract if applicable). Your lease agreement may provide require a non-refundable fee paid to the landlord, to consider the assignment. If you reviewed your lease to prepare a Lease Abstract, you should be aware of such costs.

The buyer should be prepared to provide a credit application and two or three years of tax returns for the landlord’s review. Check with the landlord to see what information will be required and if the buyer needs to use the landlord’s forms or a standard credit application.

REQUEST FOR LEASE ASSIGNMENT FORM

Get Your Request for Assignment Template Here

Note: If the Buyer is requesting a new lease, be very specific in the Letter of Intent or Purchase Agreement that terms of the financial terms of the new lease shall be similar to the existing contract.

In most cases, the landlord will not agree to provide the buyer with more attractive terms and accept less rent than currently offered in the lease.

Landlord approval of an assignment is often the biggest hurdle to selling a restaurant. For many different reasons, the landlord may be slow to respond or maybe less than cooperative.

If you provide the landlord with a financially stable and experienced buyer and run into a roadblock, seek the advice of an attorney specializing in commercial lease transactions.

If you have completed the steps above, you now have an accepted LOI or Purchase and Sale Agreement, have verified the buyer’s funds, and you are ready to open Escrow.

Congratulations!

Let’s move on to Chapter 5: Escrow the Final Stage to Close Your Restaurant for Sale.

Chapter 5: Escrow the Final Stage to Close Your Restaurant for Sale

By this time, you negotiated with your buyer and agreed on basic terms and conditions. It’s now time to close in on the final stage of your sale: Escrow.

In Chapter 5, you will:

  • Open Escrow to protect you and your buyer during the sale
  • Comply with Bulk Sale Laws
  • Schedule a final walk-through, close escrow, and complete your sale

If you’ve conducted the sale’s previous steps carefully, this final stage should be relatively quick and easy. By the end of it, your restaurant will have a new owner, and you’ll have your proceeds.

Let’s begin with escrow basics.

What is Escrow?

Escrow is a neutral third party used to protect all parties in a transaction. The escrow officer will follow the directions provided in the Purchase and Sale Agreement or Letter of Intent, take care of disbursing funds, ensure that all creditors get paid, and ensure that the buyer receives title free of any liens.

What about states that don’t use Escrow?

Not all states use Escrow. In some states, an attorney, title company, or real estate broker handles all or a portion of the transaction. The website below provides an overview of the procedures used in each state.

Guide to States that use Escrow

Escrow Fees to Close a Restaurant for Sale

Fees and charges for escrow are based on a variety of factors including the sale price, document preparation fees, newspaper publishing fees, and lien searches.

Your escrow company can provide a written estimate of cost and expenses.

Escrow fees and costs are typically split 50%/50% between buyer and seller.

Opening Escrow

The Buyer or Seller will deliver the Purchase and Sale Agreement to Escrow. The buyer is required to provide a deposit check to Escrow within the number of days specified in the contract.

The escrow officer will create an escrow account and provide an escrow number and supplemental escrow instructions for signature by both Buyer and Seller.

The supplemental escrow instructions incorporate the terms provided in the agreement and provide additional terms and conditions of the escrow.

SAMPLE SUPPLEMENTAL ESCROW INSTRUCTIONS

SUPPLEMENTAL ESCROW INSTRUCTIONS

The attached ASSET PURCHASE AGREEMENT (hereinafter the “Agreement”), by and the parties mentioned below shall serve as your Escrow Instructions and the Supplemental Escrow Instructions with General Provisions attached to these instructions are by reference hereto incorporated herein and made a part hereof and have been read and are approved by the parties to this escrow and you are authorized to act thereunder insofar as the closing of your escrow is concerned. In the event of a conflict between the Agreement and the Supplemental Escrow Instructions with General Provisions, the Agreement shall prevail.

This instruction is given on December 9, 20XX, by and between the SELLER(S) (hereinafter called Seller) SELLER NAME, LLC, and the BUYER(S) (hereinafter called Buyer) BUYER NAME, Inc.

The subject of this escrow, which Seller owns and agrees to sell and Buyer agrees to purchase from Seller, are all assets of a business known as NAME OF BUSINESS

located at: XXXX MAIN STREET, SANTA MONICA, CA 90405
consisting of (check “X” if applicable) [ X ] furniture, fixtures, and equipment, [ X ] lease, [ X ] leasehold improvements, and items as per the Agreement on the following terms and conditions:

The purchase price of said assets shall be the sum of………………………………… $100,000.00

Payable as follows:
Initial deposit in the amount of………………………………………………………………$10,000.00
Cash through balance, immediately upon the removal of Lease Contingency………….…$90,000.00

  1. This is all Cash-Offer transactions without a loan.
  2. The following is for clarification purpose:

The acceptance Date Is December 8, 20XX.

The escrow Opening Date Is December 9, 20XX.

  1. CLOSING: Escrow shall close upon earliest legal published date, on or before January 15, 20XX or the date mutually agreed by the parties but no later than 60 days from the Escrow opening date, and Buyer shall deposit in escrow on or before two (2) days prior to the close of escrow by cashier’s check the balance of all monies due to affect the same. The parties agree to do all things necessary to close the escrow on the date set forth or on completion of the conditions so stated herein.
  2. PRORATIONS: Prorate as of Close of Escrow if agreed: Personal Property taxes for the current fiscal year, ONLY if the tax bill is presented herein prior to the close of escrow.

Charge Buyer and Credit Seller Lease/Security deposits in the amount of (as per Lease, if any).
Current Month’s Rent prorated to date of possession.

  1. COSTS: The Seller and the Buyer shall pay their respective escrow fees, and the cost of this transaction shall be paid 50% by the Buyer and 50% by the Seller.
  1. Seller hereby warrants and guarantees that he has not operated the subject business under a name other than that which is being presented herein. Seller shall deliver to the buyer through escrow a list of all businesses and their addresses which the Seller has owned within the last three years. THIS LIST SHALL BE DELIVERED THROUGH ESCROW PRIOR TO THE PUBLICATION OF THE NOTICE OF BULK SALE.
  1. RELEASES:
    1. Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the State Board of Equalization.
    2. Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the Employment Development Department.
    3. Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the County Tax Collector, Business Tax Division.
  1. Buyer hereby agrees and instructs Escrow Holder to withhold the sum of $10,000.00 from Seller’s net proceeds due at closing for State Board release.
  1. You are to notify each respective state agency from which you are to receive either a release or certificate of this transfer and furnish them with any further information which may be required by these agencies. In the event the certificates of releases from the Employment Development Department have not been deposited with Escrow Holder prior to the closing of this escrow, you will receive instructions from the Buyer and Seller to withhold an agreed amount from Seller’s proceeds pending such releases. Seller warrants to Escrow Holder and Buyer that Seller’s outstanding obligations to these agencies will not exceed the number of monies held pursuant to this instruction.
  1. SEARCHES AND PUBLICATION: Escrow Holder is authorized and instructed, at the expense of the parties, to A) Record and publish an appropriate Notice to Creditors of Intended Sale; B) Forthwith obtain from the Secretary of State, Statements of Information on 1) Name of the Seller at any and all addresses; 2) Name of the business at the business address. Said searches to be on the State and County levels. Escrow Holder is authorized and instructed to deduct from proceeds as deposited into escrow, any portion of funds for the payment of reports, and demands, etc. in order to comply with the closing of this escrow, prior to the close of escrow. The parties acknowledge that in the event this escrow is canceled that no portion of the fees/costs paid will be refunded to the parties.
  1. SOLE OWNER: The Seller herein warrants that he is the sole owner of the said business with a full right to sell or dispose of it as he may choose and that no other person or persons whatsoever have any claim, right, title, interest, or lien in, too, or on said business except as stated herein.
  1. LLC DOCUMENTS: Prior to the publication and recording of Notice, there shall be deposited in Escrow by the Seller, a Copy of LLC1, LLC12, and Operating Agreement to clarify the authorized signatory.
  1. CORPORATION RESOLUTION: Prior to the close of escrow, there shall be deposited in Escrow by the Buyer, a copy of the Corporate resolutions authorizing the purchase assets which Escrow is concerned, together with the authority of the undersigned officer to transact the purchase of same and to execute any and all documents in behalf of the corporation to accomplish the sale and transfer of same.
  1. POSSESSION: Possession shall be granted to and taken by Buyer as of the close of escrow.
  1. ALLOCATION OF PURCHASE PRICE: The parties do agree and jointly stipulate that the purchase price consists of the following values paid for the specific assets indicated as follow:

Fixtures, Furniture, and Equipment $10,000.00 Leasehold Improvement $90,000.00

  1. BILL OF SALE-FIXTURE LIST: The parties shall immediately, or in any event, as practical, cause to be deposited in escrow an itemized list of the furniture, fixtures, and equipment being conveyed, approved in writing by both parties. Seller shall deposit herein his good and valid Bill of Sale covering the same, warranting them free of any liens or encumbrances.
  1. SALES TAX – FIXTURES AND EQUIPMENT: Buyer shall reimburse Seller through escrow sales tax on fixtures and equipment based on a valuation to be determined and provided to Escrow Holder prior to the close of escrow.
  1. The undersigned Buyer and Seller acknowledge that they are aware of the governmental regulations which require that all funds deposited into escrow must be collected and available for withdrawal prior to the disbursement of the same from escrow. Pursuant to these requirements, all funds deposited into this escrow shall be in the form of cash, a California Bank’s Cashiers Check or wire transfer, except in the case of initial deposits. In the event of deposit(s) of any other type of funds, the Escrow Holder is authorized and instructed to delay the closing of escrow pending written confirmation of the clearance of all deposits.
  1. The parties agree that for purposes of this escrow, any instructions or amendments executed by the parties and transmitted to Escrow Holder by electronic facsimile shall be valid and enforceable as original signed documents to Escrow Holder.
  1. AMENDMENTS: The parties do agree that in all matters pertaining to this Escrow the signature of any one of the Buyers and any one of the Sellers shall suffice for Escrow amendments.
  1. NO REPRESENTATIONS: The parties hereto agree that no representations have been made by either party other than those specifically set forth in this agreement between the parties, superseding all prior agreements whatsoever. It is further understood and agreed that the Buyer has made his own independent investigation of the subject business, has satisfied himself with his ability to conduct the same, and is now purchasing the said business with the clear and distinct understanding and agreement that all profits are future, to be arrived at from his own resources and labors.
  1. SELLER INDEMNITY: Except as otherwise provided herein, Seller shall indemnify and hold the buyer and the assets of said business, free and harmless from any and all claims, losses, damages, injuries, and liabilities arising from or on account of seller’s operation of said business or seller’s ownership of any assets of the said business that are subject to this escrow or seller’s ownership or occupation of said business. Seller further agrees to indemnify and hold the buyer including said business, and the assets if the said business, free and harmless from any and all lawsuits, actions, causes of actions, or judgments arising from or on account of seller’s operation of said business or seller’s ownership of any assets of the said business that are subject to this escrow or seller’s property.
  1. LEGAL ADVICE: THE BUYER AND SELLER HEREIN ACKNOWLEDGE THAT THEY HAVE BEEN ADVISED TO SEEK THE ADVICE OF LEGAL COUNSEL BEFORE THE EXECUTION OF THESE ESCROW INSTRUCTIONS AND THE DOCUMENTS BEING CREATED HEREIN.
  1. CANCELLATION FEES: In the event, this escrow is delayed for two (2) months from the most recent closing date agreed by the parties or if the escrow is canceled, and if the delay or cancellation is caused by either of the parties to this escrow, the Escrow Co. shall be entitled to receive an escrow administration fee in proportion to the services provided by Escrow Co.

SELLER’S INITIALS: /                                                                                       BUYER’S INITIALS: /

  1. HOLD OPEN FEES: If funds are held by you following the close of escrow, in order to compensate you for the administration and monitoring of this escrow, you are authorized to charge, and deduct from funds on deposit herein, a hold-open fee of $75.00 for each month this escrow has a balance therein following two months after the close of this escrow.
  1. SPECIFIC INSTRUCTIONS: These specific instructions are made of the Buyer’s and Seller’s own free will, under no duress with a full understanding of the consequences, not relying on any information furnished or statements made by the Escrow Holder as to the conditions of the escrow, the title to the property and personal property involved and ultimate outcome of the escrow or otherwise.
  1. HOLD HARMLESS: The Buyer and Seller herein each agree to hold Escrow Co. harmless from any and all liability and/or responsibility that might arise from the Escrow Holder’s compliance with this escrow transaction. Should a lawsuit be filed against Escrow Co. for compliance with these instructions, the parties hereto agree to indemnify and hold Escrow Co. harmless and agree to pay all attorney’s fees incurred by Escrow Holder in defense of action except willful misconduct and/or negligence.
  1. ENTIRE CONTRACT: Time is of the essence. No extension of time for performance of any act or obligation shall be deemed an extension of time for any other act or obligation. All prior agreements between the parties are incorporated in this agreement which constitutes the entire contract. Its terms are intended by the parties as a final expression of their agreement with respect to such terms are included herein and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. The parties further intend that this agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this agreement.
  1. It is hereby agreed and acknowledged by the parties that the buyer is responsible for taking necessary steps and procedures OUTSIDE OF ESCROW, in order to change ownership of the business on any/all governmental license and/or permits, obtain a business license and/or business tax registration certificate from City clerk office, health license permit, seller’s permit from State Board of Equalization, check all applicable department in the City and obtain the necessary permit(s) including Conditional use Permit, open an account to Employment Development Department, obtain an education for food stamp program, and/or change ownership for utilities such as telephone, gas company, Department of Water and Power, and electricity. Further, the seller agrees to take necessary steps OUTSIDE OF ESCROW, in order to terminate, withdraw, or close his account or permit(s). The parties hereby hold the escrow holder harmless and relieve of any liability and/or responsibility for the foregoing.
  1. IT IS ACKNOWLEDGED BY BUYER AND SELLER THAT IN THE EVENT OF CANCELLATION, THE FUNDS DEPOSITED IN TRUST ACCOUNT OR IN ESCROW ARE NOT RELEASED AUTOMATICALLY OR PER REQUEST BY SELLER OR BUYER ONLY. RELEASE OF FUNDS IN ESCROW REQUIRES WRITTEN CANCELLATION/AGREEMENT EXECUTED BY BOTH PARTIES, JUDICIAL DECISION OR ARBITRATION.

BUYERS:

BUYER, Inc., a California Corporation

By:
John Buyer, Authorized Signatory

SELLERS:

SELLER, LLC, a California limited liability company

By:
Suzy Seller/Manager

Escrow will require the following information from the Seller and Buyer:

From SELLER (Current Owner):

  1. Business Name & Address (Exact entity name or individual name)
  1. Doing Business As (DBA)
  1. All other business names and addresses used in the last three years
  1. Home/Forwarding Address, other than business address (EDD requirement for post-closing items)
  1. Tax I.D. Number (if corporation/entity) or Social Security Number (if an individual)
  1. Employment Development Department Account Number (If you have employees, Escrow will need the EDD # to order the necessary release from the Employment Development Department)
  1. Sales Tax Permit Number (In connection with the State Board of Equalization)
  1. Copy of your Sellers Permit
  1. Allocation (Breakdown) of the Purchase Price
  1. Liquor License Number (If the transaction involves liquor license transfer)
  1. Contact Information (Phone number and email address)

From BUYER:

  1. Deposit to open Escrow, as agreed upon, made payable to Escrow Company
  1. Buyer’s Name & Address (This must be exact – If the buyer is forming an entity, Escrow will need a copy of the Articles of Incorporation)
  1. Forwarding Address, for post-closing items (If different from above)
  1. Tax I.D. Number (if corporation/entity) or Social Security Number (if an individual)
  1. Employment Development Department Account Number (If you have employees, Escrow will need the EDD # to order the necessary release from the Employment Development Department)
  1. Contact Information (Phone number and email address)
ASSET ALLOCATION FORM

Get Your Asset Allocation Form Here

What Happens in Escrow?

The following is a summary of the escrow process and does not attempt to explain every step of the transaction.

Bulk Sale Notice Requirements

The Bulk Sales Act is part of the Uniform Commercial Code. Most states adopt a version of the Uniform Commercial Code, and accordingly, the Bulk Sales Act.

The Bulk Sales Act, as adopted in California, provides that where a debtor proposes to sell more than half of its inventory and equipment, not in the ordinary course of business, the buyer must give notice.

Notice is in two forms:

  1. Record notice of sale at the county recorder’s office where the assets are

located; and

  1. Publish notice of sale once in a newspaper (in general circulation) where the assets are located. The debtor does not have to mail notice to its creditors before the bulk sale. Recordation and publication must happen at least twelve (12) days before the sale.

Failure to comply with the Bulk Sale Act may cause the buyer to be liable to creditors not paid in full.

The primary purpose of the Bulk Sale Act is to provide a debtor’s creditors with notice so as to have their claims paid (or take protective action) before the debtor transfers assets and makes off with the sale proceeds and to insulate the buyer from the debt of the seller.

Tax and Lien clearances

The escrow officer will obtain clearance certificates from taxing authorities such as the Employment Development Department, Franchise Tax Board, and State Board of Equalization on behalf of the buyer to ensure no successor liability to any taxing agencies. Any liens recorded need to be paid before the close of Escrow.

State Board of Equalization

In most escrows, unless the business closed and the State Board of Equalization has final tax returns, Escrow will be required to hold back a portion of the sales proceeds to pay any taxes that may be due.

To determine tax proceeds required at closing, Escrow will often review the last two quarterly tax returns.

WARNING:

State Board of Equalization is often the cause of delays to close Escrow. If the business will close, file your returns as soon as possible. If you are delinquent on taxes, notify Escrow as quickly as possible to determine a course of action to avoid additional delays.

Escrow submits a request for a release from the State Board of Equalization (“BOE”) at the close of Escrow because the Seller will need to file his final return and pay sales tax on the fixtures and equipment. The BOE has 60 days to reply to the request with either a release or demand with any amounts owed.

UCC Search & Tax Lien Search

A UCC-1 financing statement (an abbreviation for Uniform Commercial Code-1) is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor.

Escrow will order a UCC search, and tax lien search to determine if there are any creditors or tax agencies that currently have claims on any assets.

Liquor license Transfers

Licensing laws vary in different areas of the country. The chart below outlines the process involved to transfer a liquor or beer and wine license.

Final Walk-through

A final walk-through should be scheduled a few days before the close of Escrow. The buyer will confirm the fixtures and equipment are all present and in good working condition.

If the inventory is part of the sale, a value will is assigned.

Buyer and Seller will notify Escrow in writing that they are ready to close Escrow. The escrow officer will prepare the closing papers, which include the following:

Bill of Sale.

For the equipment and fixtures.

Closing Statement.

The closing statement provides both Buyer and Seller a breakdown of the accounting showing the total credits and debits paid by each party. If applicable, certain expenses such as rent or prepaid expenses get prorated.

 Promissory Note.

If you are providing a loan for part of the purchase price, a promissory note is prepared by Escrow and secured by a UCC1 security agreement.

Inventory.

If the stock is part of the sale ( food, beverages, paper, and supplies), the buyer will pay for these items.

Liquor license transfer.

If a liquor license is part of the sale, Escrow will complete the processing of the liquor license.

Once all of the above is complete, Escrow will disburse funds, and you will provide the keys to the buyer.

Congratulations on the successful sale of your restaurant!

If you followed all of the steps provided, you should have experienced a smooth transaction.

Do you have any questions? Contact me.

Cheers!

Mark

Time needed: 60 days.

Restaurant for Sale-The Sellers Guide to Making the Sale

  1. Preparing to list your Restaurant for Sale

    Complete a Seller’s Disclosure Statement.
    List the assets of your restaurant for sale.
    Review your lease for relevant clauses that could impact your sale.
    Gather and prepare all vital documents.
    Establish a confidential way for buyers to contact you.List your restaurant for sale

  2. Marketing Your Restaurant for Sale

    Determine the key selling points of your restaurant for sale.
    Set your price, and justify that price to buyers.
    Write an ad that attracts attention from serious, qualified prospects.
    Make a great first impression with buyers by preparing your restaurant to show.
    Publish your restaurant for sale on popular, high-traffic websites.Restaurant for sale marketing plan

  3. Working with Buyers after Listing Your Restaurant for Sale

    Safeguard your time and energy by screening potential buyers.
    Invite qualified, serious buyers to view your restaurant at its best.
    Schedule walk-throughs that inspire competition between bidders.
    Prepare and rehearse your answer for the most robust question buyers will ask.working with restaurant buyers

  4. Negotiating the Deal for Your Restaurant for Sale

    Prepare for a common negotiation tactic that buyers use.
    Acquire all necessary documents that begin formalizing your sale.
    Sign Letter of Intent or Purchase and Sale Agreement.negotiate restaurant for lease

  5. Escrow the Final Stage to Close Your Restaurant for Sale

    Open Escrow to protect you and your buyer during the sale of your restaurant.
    Comply with Bulk Sale Laws.
    Schedule a final walk-through.
    Sign closing documents and complete your restaurant sale.
    open escrow

Filed Under: Uncategorized

Rent for Restaurant-How to Determine the Right Rent for a Restaurant

December 26, 2020 by Mark Chase 23 Comments

Ready to learn how much rent should be for a restaurant?

Awesome!

This article will explain everything you need to know so you don’t pay too much rent.

[Read more…]

Filed Under: Blog

How to Buy a Restaurant: The Definitive Guide

December 19, 2020 by Mark Chase 1 Comment

Buying a Restaurant

This is the most comprehensive guide to buying a restaurant online.

In this new guide, you will learn the step-by-step processes I have used hundreds of times to successfully purchase restaurants for my clients.

Let’s dive right in.

Table of contents

  • Buying a Restaurant
  • Chapter 1: How to Buy a Restaurant
    • Let’s get started
    • Your Roadmap to Buy a Restaurant is Your Business Plan
    • Your Concept and Menu Key to How You Buy a Restaurant
    • Know Your Target Customers Before You Buy a Restaurant
    • Competitive Analysis is Critical Before You Buy a Restaurant
    • Study Competition Before You Buy a Restaurant
      • Sample Site Criteria
    • Where should you look to buy a Restaurant?
    • What is the Trade Area when searching to buy a Restaurant
    • Buying a Restaurant-Determining Your Trade Area
    • Site Considerations to Evaluate to Buy a Restaurant
      • Restaurant Traffic Generators
      • Consider Access When You Buy a Restaurant
      • Don’t Overlook Visibility When You Buy a Restaurant
    • Property Types for Restaurants You Can Buy
      • Neighborhood Centers
      • Strip Centers
      • Community Center
      • Power Center
      • Free-standing
      • Mixed-Use
    • Types of Restaurant Space to Consider when you Buy a Restaurant
      • Pad
      • End-Cap
      • Inline
      • Elbow
    • Financial Projections to Analyze Before You Buy a Restaurant
    • Other sources to determine sales for Restaurants for Lease:
    • Cost of Rent When Considering a Restaurant to Buy
    • Start-Up Costs to consider when you buy a restaurant
      • The following Capital Budget sheet includes most of the items you will need to budget.
    • Business Entity Formation
    • Corporation, LLC, or Sole Proprietor
    • DBA
    • Tax Identification Number
    • Licenses
    • Bank Accounts
    • Personal Financial Statements
      • Balance Sheet and Business Plan
      • Personal Balance Sheet
    • Zoning and Permits for Restaurants
      • Zoning
        • Warning: Don’t think the restaurant you are buying is zoned or permitted for restaurant use. There are many restaurants for sale that did not receive the proper permits. Always confirm the restaurant you buy has the proper permits.
      • Where to Find Zoning Information
    • Is Restaurant Use Allowed?
    • How Much Parking is Required for a Restaurant?
    • How to Perform Parking Calculations on Restaurants
    • Off-site Parking
    • Valet Parking
    • Health Department
  • Chapter 2: How to Find Restaurants to Buy
    • Restaurants for Lease Internet Sites
    • Commercial Real Estate Brokers
    • Real Estate Brokers
    • Commercial Real Estate Broker
    • Who Does the Commercial Real Estate Broker Represent?
    • Beware of Dual Agency
    • Who Pays the Commission when you buy a restaurant?
    • Buyer Broker
    • Should You Use a Real Estate Broker to Buy a Restaurant?
    • Getting the Most from Your Restaurant Broker
    • Should You Work with One or Many Brokers?
    • Exclusive Representation to Buy a Restaurant
    • Problem with Commissions
    • There is a Solution—Minimum Fee
    • Term of Agreement
    • Hourly or Flat Fee Consulting
    • Viewing Restaurants For Sale
    • Buying a Restaurant-Off-Market Deals
    • Tracking Restaurant Listings When You Buy a Restaurant
    • Analyzing the Deal When You Buy a Restaurant
    • What is a Non-Disclosure Agreement?
  • Chapter 3: Negotiating the Deal When You Buy a Restaurant
    • Preparing the Offer
      • Letter of Intent
      • Purchase and Sale Agreement
    • Proof of Funds
    • Pre-Escrow Period
    • Physical Inspection
    • Due Diligence
    • Lease Assignment/ New Lease
  • Chapter 4: Escrow the Final Stage to Buy a Restaurant
    • What is Escrow?
    • Escrow Fees
    • Opening Escrow
      • Sample escrow instruction used to buy a restaurant
    • Escrow will require the following information from the Seller and Buyer:
    • From BUYER:
    • What Happens in Escrow when you buy a restaurant?
      • Bulk Sale Notice Requirements
      • Tax and Lien clearances
      • State Board of Equalization
      • WARNING:
      • UCC Search & Tax Lien Search
    • Final Walk-Through
    • Bill of Sale.
    • Closing Statement.
    • Promissory Note.
    • Inventory.
    • Liquor license transfer.
    • Congratulations on buying a restaurant!

Chapter 1: How to Buy a Restaurant

Let’s get started

 

You should complete the following steps before starting your search to buy a restaurant:

  • Create a Business Plan
  • Form Business Entity
  • Prepare Personal Financial Information
 

Your Roadmap to Buy a Restaurant is Your Business Plan

 

The main ingredients of your business plan include:

  • Menu/Concept
  • Target Customers
  • Competitive Analysis
  • Pricing
  • Financial Projections
  • Cost of Rent
  • Start-Up Costs

Before looking to buy a restaurant you need to have a road map. The following information will be the backbone of your business plan.

 

Your Concept and Menu Key to How You Buy a Restaurant

 

You will design your restaurant around your concept and menu.

There are many types of restaurants. A few examples include;

  • Fast Food
  • Quick Service
  • Fast Casual
  • Fine Dining
 

Know Your Target Customers Before You Buy a Restaurant

 

Determining who your target customer is and knowing where they live, work, and play is critical to your success.

Without getting into a detailed discussion of demographics or psychographics, your customers will share several characteristics such as age or income level.

The quickest way to learn about your customers is to study your competition.

 

Competitive Analysis is Critical Before You Buy a Restaurant

 

Let’s say you plan to sell hamburgers priced between $6 to 8 dollars.

We can assume a chain like Smashburger is one of your competitors.

If your competitor is a large chain like Smashburger, it’s pretty easy to learn about their customer profile.

Often you can check under the franchising section of your competitor’s website.

You can also contact their real estate department and ask for their site criteria.

Doing so will provide you with the information they use to analyze sites.

According to information provided from their real estate department, you can determine the criteria they use to find restaurants for lease near their target customers.

 

Study Competition Before You Buy a Restaurant

 

Sample Site Criteria

MAJOR METROPOLITAN MARKET PREFERENCES

  • Traffic Count: > 50,000 Cars Daily
  • Employees (3 Mile Radius): > 75,000
  • Population (3 Mile Radius): > 75,000

SECONDARY MARKET PREFERENCES

  • Traffic Count: > 30,000 Cars Daily
  • Employees (3 Mile Radius): > 40,000
  • Population (3 Mile Radius): > 50,000
  • Average Household Income (3 Mile Radius): $60,000
  • Proximity to QSR Burger, Adult Casual Burger, & Fast Casual Competitors

SITE CHARACTERISTICS

  • Size: Typically 1,600 – 2,200 Square Feet
  • Building Type: End Cap / In-Line Location
  • Parking: Minimum 16 Spaces, Preferred 20-25
  • Seating: 40-70 Interior with Exclusive Patio as Available
  • Full Dress Trade Package and Signage

CONSTRUCTION MINIMUMS

  • Electrical: 400 AMPS (120/208 V)
  • Gas: 2.5″ Gas Line, Minimum 2 Million BTU
  • Water: Per Code, 1.5″ Service Minimum
  • Grease Trap: Per Code, Installed
  • HVAC: 1 Ton per 150 SF, Approximately 10-12 Tons

As you can see, Smashburger looks for restaurants for lease with more than 75,000 employees within 3 miles, and a total population greater than 75,000 people within 3 miles.

They also look for an average household income of $60,000 per year within a 3-mile radius.

They have also provided valuable information about their business:

SMASHBURGER AT A GLANCE

OUR BUSINESS

  • Dine-In (70%), Carry Out (30%)
  • Lunch (55%), Dinner (45%)
  • 10am-10pm Daily
  • $8 average check

OUR RESTAURANT

  • Modern Décor
  • 1,600-2,200 Square Feet
  • Booth & Flexible Seating (40-70 Seats)
  • Patio Preferred (20-40 Seats)

OUR MENU

  • 100% Angus Beef Smashburgers
  • Smashfries, Sweet Potato Fries, Classic Fries, Haystack Onions, Veggie Frites, Häagen Dazs Shakes & Floats
  • Chicken Sandwiches & Salads
  • Beer & Wine

OUR SERVICE

  • Counter Ordering, Table Service
  • 5-6 Minute Service Times
  • 20-25 Minute Table Turns

Using this, you can either look to buy a restaurant near existing Smashburgers or research areas with similar demographics.

Many free and paid services offer demographic information.

Most real estate brokers provide necessary demographic information as part of their marketing information about the property they are marketing for lease or restaurant they are selling.

 

Where should you look to buy a Restaurant?

 

Before starting your search for a restaurant property, you need to determine the “Trade Area” where you wish to open and the type of real estate you want to consider.

 

What is the Trade Area when searching to buy a Restaurant

 

A restaurant’s trade area is the geographic area that contains 75 to 90 percent of your customers.

According to Groupon, Customers spend 80 percent of disposable income within 2 miles of a person’s home.

The geographic area can take many shapes and is determined primarily by your customers’ distance or time to access your place of business.

A trade area comprises a combination of employees, commuters, and shoppers.

Quick Service Restaurants (QSRs) and Fast Food restaurants are typically convenience-driven concepts.

Their success depends more on convenience to their customer than a destination business such as a new car dealership where customers usually plan to visit the location for a specific reason.

For this reason, the trade area for quick-service restaurants is usually 1-2 miles or 3-10 minutes in the distance from their primary customer in a central metropolitan area such as Los Angeles.

Many quick-service restaurants rely on residents living within the surrounding neighborhoods for 40%-60% of their business.

Other concepts, such as those located in a Central Business District, may depend almost entirely on employees working within a few blocks and receive limited sales from residential customers.

Ideally, a restaurant’s trade area will provide the right mix of residential, employees, and a robust retail draw to attract shoppers.

The key to determining which trade area is right for your restaurant is the combination of :

  • the total number of people who match your customer profile
  • the right amount of competition
  • position to your competition
  • and the perceived convenience of visiting your business in the eyes of your potential customers.
 

Buying a Restaurant-Determining Your Trade Area

 

The research about your competition should give you a starting point when you begin your property search.

Each Trade Area is unique, and you will need to determine the boundaries for each.

While many restaurant property brochures will provide demographic reports showing 1, 3, 5-mile radius rings, the actual boundaries are often much different.

Sample Radius Map

Restaurants for Lease-Sample Trade Area Map

 

A more accurate method to determine your store’s trade area is calculating the drive-time to and from your customers’ home or work to your proposed store.

Let’s use the following example. You have researched a competitor’s site, and you have determined that locating near this store is a good starting point.

Purchase a map or print a map using Google or Yahoo maps. Make sure the map shows all of the streets within 3-4 miles in all directions.

Using a highlighter, mark the major roads leading to residential neighborhoods, business districts, and retail or entertainment areas.

Using a watch or a stopwatch, drive from your proposed store heading north towards your first destination.

Using your timing device, mark your location on the map at various intervals such as 3, 5, and 10 minutes.

Be sure to note any barriers that require you to alter your route or prevent you from reaching your destination.

Using the same process, drive South, East, and West. Your map should now have markings in each direction for 3, 5, and 10 minutes.

The more paths of travel that you compute, the more accurate your trade area boundaries are.

Using dotting lines, connect the dots for each of the periods.

This map should give you a good idea of how easy or difficult it will be for your customers to reach your store.

Use the boundaries developed on your plan to determine the customers’ demographic profile within your limits using various demographic programs.

It’s essential to conduct this study during various times of the day to factor in traffic conditions.

A five-minute drive at 10:00 a.m. on Saturday may take thirty minutes in rush hour traffic.

You will need the help of a commercial real estate broker or demographics service to provide demographics at the level provided below.

Sample Drive-time Map

Restaurants for Lease Drive-Time Map
 

Site Considerations to Evaluate to Buy a Restaurant

 

Restaurant Traffic Generators

 

Most businesses’ primary traffic generators consist of employment centers, residential neighborhoods, shopping, commuter traffic, and entertainment.

Determine where your customers live, work, shop, and entertain themselves within 1 to 3 miles.

Label these locations on a map.

 

Consider Access When You Buy a Restaurant

 

Access to your location can significantly impact your sales.

Some restaurants for lease are visible but too difficult to access.

Things to consider:

  • How long does it take to get in or out of the property?
  • Can you make a left-turn into or out of the property?
  • Is there a median that prevents cars from entering from one direction?

The more comfortable and faster it is to enter and exit (ingress & egress), the better

 

Don’t Overlook Visibility When You Buy a Restaurant

 

Visibility is vital for most restaurants.

Many sales are impulse sales and not planned. End-caps and pads typically have the best visibility in shopping centers.

If you are locating inside a shopping center, try to find a visible space for cars as they enter the shopping center.

Check regarding any restrictions on the size and type of signage allowed.

Some cities may limit colors and require standardized signage that provides little differentiation between you and the other tenants.

 

Property Types for Restaurants You Can Buy

 

Restaurants open in all types of properties.

Although some restaurants have unique locations, most restaurants are in one of the following property types.

 

Neighborhood Centers

 

Neighborhood centers provide convenience shopping for the immediate neighborhood’s day-to-day needs.

They typically consist of a grocery store, major drug store, or both. The majority of neighborhood centers range from 30,000 to 100,000 square feet.

 

Strip Centers

Strip centers consist of a row of at least three retail stores managed as a single property.

Most strip centers are L-shaped, U-shaped, or a straight line of stores.

Strip centers typically include dry cleaners, fast food, convenience stores.

 

Community Center

 

A community typically offers a broader array of soft goods than a neighborhood center.

Community center tenants sometimes include home improvement, furnishings, and super discount stores.

 

Power Center

 

A power center includes several large anchor tenants, including warehouse stores, and “category killers” such as Best Buy and Target.

 

Free-standing

 

A free-standing is building is a stand-alone building. McDonald’s and other fast-food restaurants with a drive-thru often prefer this type of facility.

 

Mixed-Use

 

Mixed-use buildings are typically apartment buildings with retail on the ground level.

Most of the new construction in cities with limited land is mixed-use.

Many office buildings have a few spaces on the ground level to service the tenants of the building.

Restaurants are often tenants in these buildings if the neighborhood is mostly office space.

 

Types of Restaurant Space to Consider when you Buy a Restaurant

 

Pad

 

Pad buildings are free-standing buildings and often located at the edge of larger shopping centers.

Restaurants usually prefer these buildings due to being closer to the street and the visibility they provide.

 

End-Cap

 

End-caps provide the best visibility in most shopping centers. They often provide additional signage and visibility on two sides of the building.

 

Inline

 

Inline spaces are located between anchor tenants in larger shopping centers or between end-caps in smaller strip centers.

 

Elbow

 

The elbow is typically the worst space in most shopping centers. The configuration is often not a rectangle, and visibility is often lacking.

 

Financial Projections to Analyze Before You Buy a Restaurant

 

Your projected sales will determine your entire business plan.

Again, your competition is the best source to determine your sales potential.

If your competition is a publicly-traded company, you can often determine their average sales per unit. Some companies also provide this information when they advertise their franchise to prospective franchisees.

Some sources for sales information are:

  • QSR Magazine
  • Nations Restaurant News
  • Franchise Disclosure Documents
  • Technomic.com

Here’s an overview of a special report from National Restaurant News.

Source NRN.com

Estimated Sales Per Unit 2013

LSR/Burger

McDonald’s                                                                                      $ 2,519,400.00

In-N-Out Burger                                                                             $ 2,384,600.00

Culver’s                                                                                             $ 1,831,400.00

Steak’n Shake                                                                                  $ 1,697,800.00

Wendy’s                                                                                            $ 1,405,300.00

Jack in the Box                                                                                $ 1,380,000.00

White Castle                                                                                     $ 1,268,400.00

Carl’s Jr.                                                                                            $ 1,255,400.00

Burger King                                                                                      $ 1,193,400.00

Five Guys Burger and Fries                                                          $ 1,070,400.00

Dairy Queen                                                                                     $ 634,600.00

LSR/Sandwich

Jason’s Deli                                                                                     $ 2,427,300.00

McAllisters Deli                                                                             $ 1,358,200.00

Arby’s                                                                                               $ 881,200.00

Jimmy John’s Gourmet Sandwiches                                         $ 874,700.00

firehouse Subs                                                                                $ 726,600.00

Subway                                                                                             $ 482,300.00

Quiznos Sub                                                                                    $ 291,200.00

LSR/Mexican

Chipotle Mexican Grill                                                                 $ 2,072,200.00

Taco Bell                                                                                        $ 1,319,800.00

Del Taco                                                                                          $ 1,122,600.00

Moe’s Southwest Grill                                                                  $ 973,100.00

Qdoba Mexican Grill                                                                    $ 964,000.00

Beverage-Snack    

Krispy Kreme Donuts                                                                   $ 2,407,400.00

Dunkin Donuts                                                                               $ 874,900.00

Starbucks Coffee                                                                            $ 854,700.00

Jamba Juice                                                                                     $ 620,700.00

Baskin Robbins                                                                              $ 207,100.00

Chicken

Chick-fil-A                                                                                      $ 2,769,900.00

El Pollo Loco                                                                                  $1,533,600.00

Popeyes Louisiana Kitchen                                                        $ 1,168,200.00

KFC                                                                                                  $ 957,700.00

Wingstop                                                                                        $ 882,400.00

Church’s Chicken                                                                         $ 718,600.00

Pizza 

CiCi’s Pizza                                                                                      $ 866,300.00

Little Caesars Pizza                                                                        $ 813,700.00

Papa John’s Pizza                                                                           $ 783,100.00

Pizza Hut                                                                                          $ 742,400.00

Domino’s Pizza                                                                               $ 722,100.00

Sales can vary significantly based on factors such as location and competition in the marketplace.

Using average unit sales is just a starting point.

Once you determine where you plan to open, you will need to dig deeper and possibly modify your numbers.

Also, a large well-known brand like Subway or Chipotle will have higher sales and better margins based on their advertising, brand recognition, and economies of scale.

You should not expect to outperform your competitors.

 

Other sources to determine sales for Restaurants for Lease:

 

One of the easiest methods to determine your competitors’ sales is to ask.

Have lunch or dinner at your competitors’ restaurant and ask the manager about their business.

Tell them you are new to the area and thinking about opening a retail store.

Another more time-consuming method is to count customers.

This method can confirm your assumptions once you narrow down a neighborhood where you plan to open.

Determine the average check per person, sit outside, and count the number of customers entering the store during the day’s various times.

In addition to determining sales for your competitor, you will learn the slow and busy times are so you can plan the number of employees needed during different times of the day.

 

Cost of Rent When Considering a Restaurant to Buy

 

Rent is the most critical cost to determine. You can adjust other expenses in your business, but not your rent once you sign a lease.

The general rule of thumb is, your total occupancy cost (rent and additional fees for property taxes, insurances, common area expenses, etc.) should not exceed 6-12% of your gross sales.

Your annual sales determine the rent you pay.

Your business plan should provide a realistic expectation of annual gross sales if you were diligent in researching your competition.

You can benchmark your numbers by looking at your competitors’ sales and occupancy costs if they are public companies.

The chart below from Chipotle Mexican Grill’s Form 10 K shows occupancy costs equal to 6.3% of revenue.

Fine-tune after you determine the trade area where you will open.

If your research shows that the occupancy costs for your primary competitors range between 6% and 10% and you’re projecting sales equal to $1,000,000 per year, the annual rent you can afford ranges between:

$1,000,000 @ 10% = $100,000

$1,000,000 @ 6%= $60,000

Assuming you are buying a 2,000 square foot restaurant, you can pay between $5,000 and $8,300 per month, including common area charges, property taxes, and building insurance.

The rent should be a major consideration when determining the value of the restaurant you purchase.

Tip: Buying a below-market lease is a big advantage

 

Start-Up Costs to consider when you buy a restaurant

 

Start-up costs will depend on many factors, including but not limited to the size of the store, design, type of equipment required, and existing infrastructure of the property.

If you buy a restaurant you should be able to minimize the time and cost to open your restaurant.

It’s a good idea to know the costs to build from scratch so you can compare your options.

 

The following Capital Budget sheet includes most of the items you will need to budget.

 

Leasehold Improvements                                                             $50,000-$200,000

First Month’s Rent & Security Deposit                                      $5,000-$10,000

Equipment & Supplies                                                                   $4,500-$10,000

Outside Signage                                                                              $2,000-$10,000

Opening Inventory                                                                         $4,000-$10,000

Insurance                                                                                          $1,000-$5,000

Opening Advertising                                                                      $2,500-$5,000

Legal & Advertising                                                                        $1,000-$10,000

Website Design                                                                               $2,000-$20,000

Working Capital                                                                               $10,000-$30,000

Payroll (3 months)                                                                          $15,000-$50,000

Security System                                                                               $2,000-$6,000

Total                                                                                                    $139,000-$376,000

Exact costs for each item will vary based on where you live, and the vendors you hire.

The following chart shows the average cost to build their restaurants.

CompanyAverage SFConstruction CostBuild PSF
Chipotle2535$800,000$315.58
Panera4500 $1,050,000.00$233.33
5 Guys2500 $350,000.00$140.00
Smashburger2000 $400,000.00$200.00
Subway1200 $187,750.00$156.46
Dickey’s1800 $395,000.00$219.44
Wingstop1500 $408,000.00$272.00
Firehouse1800 $400,000.00$222.22
Wahoo’s2500 $600,000.00  $240.00  

Using the average cost per square feet, you can get a pretty good idea of the estimated cost to build a new restaurant. 1,200 x $300.00 = $360,000.

When you buy a restaurant you should be able to reduce the cost dramatically compared to the cost of new construction unless you are buying a restaurant based on its existing net income and goodwill.

 

Business Entity Formation

 

Before looking to buy a restaurant it’s a good idea to establish your company first.

Many new restaurateurs find a location first. When they do, they have to rush to form a corporation, open a bank account, and obtain the various licenses needed to run a business.

You need the entity before closing escrow.

You will look much more credible to sellers and landlords when you take care of this upfront.

 

Corporation, LLC, or Sole Proprietor

 

You will create your business entity based on your personal preference and advice from your attorney and CPA.

It is best to set this up a corporation or LLC early for the reasons listed above.

Suppose you are doing business as a sole proprietor or operating under a different name than the corporation or LLC. In that case, you will need to file a DBA.

 

DBA

 

You can find information about filing a DBA using the following link:

Register DBA

Incorporate Your Business

If you plan to build a large brand or franchise in the future, you may want to determine if your name can be trademarked and confirm that a competitor is not using the name.

 

Tax Identification Number

 

If you form a corporation or LLC, you will need to obtain a tax id or EIN.

You will need this before opening a business checking account.

Apply for EIN

 

Licenses

 

The following link provides a list of licenses based on your zip code and type of business.

License and Permit Information

You will need additional licensing to operate your restaurant. Permitting will be covered in more detail.

 

Bank Accounts

 

Most sellers will request a bank statement providing proof of funds.

Sellers will become suspicious when money that was not there in your bank account will suddenly appear during the prior statement period.

It’s a good idea to open your account before starting your search to buy a restaurant and adding funds to it.

Having a bank account ensures that your accounting for any expenses incurred during your search and before opening the business.

There is a good chance you will need to pay vendors for items such as logo design and concept design before finding a location.

 

Personal Financial Statements

 

Balance Sheet and Business Plan

 

Before submitting any offers to buy a restaurant, it’s essential to be prepared to sell yourself.

Don’t wait until the last minute when you may be competing with other parties. Prepare in advance to provide the following:

  • Executive Summary or Business Plan
  • Personal Balance sheet listing assets and liabilities
  • Credit report
  • Bank statements
  • (2) Years Personal Tax return

You may not need all of the above. Still, you should be prepared at a minimum to provide a credit application, including a balance sheet and a business plan or executive summary.

 

Personal Balance Sheet

 

You will need to provide a personal financial statement to prospective landlords. It’s a smart idea to have a generic balance sheet prepared in advance.

Some landlords will require their form, but it will be much quicker if you have this information readily available.

Note: Unless your corporation or LLC has a proven financial history and substantial assets, the Landlord will require a personal balance sheet.

The following is a sample credit application and balance sheet to gather your information.

Sample Restaurant for Lease Application

If you have followed the steps provided above, you should already have

  • Defined your concept
  • Known your target customer and demographic profile
  • Known your competitors’ sales, store size, and occupancy costs
  • Have the majority of your business plan complete
  • Have your business entity and bank account
  • Determined where to open your restaurant

You are now almost ready to start looking to buy a restaurant.

But before you start looking, you need to understand some basics about zoning and permits.

You can’t just open a restaurant anywhere you like.

 

Zoning and Permits for Restaurants

 

What is one of the biggest time-wasters made by first-time restaurateurs?

Not understanding the zoning and permitting requirements required to open a restaurant.

 

Zoning

 

Theoretically, the primary purpose of zoning is to segregate incompatible uses. Zoning typically designates an area as residential, commercial, agricultural, and industrial.

Before starting your search, you should research which zoning allows your use. Some uses, such as a bar or nightclub, may have stricter zoning rules.

Also, some individual parcels may have different zoning than the neighboring plots of land.

Before moving too far along in your planning, it’s a good idea to confirm the property that you wish to open your restaurant is zoned correctly.

Warning: Don’t think the restaurant you are buying is zoned or permitted for restaurant use. There are many restaurants for sale that did not receive the proper permits. Always confirm the restaurant you buy has the proper permits.
 

Where to Find Zoning Information

 

Most cities have zoning information available online. Typically, you can find zoning information listed under City Planning or Building & Safety.

The following links show zoning information for the City of Los Angeles.

Los Angeles Zoning Information 

Los Angeles uses ZIMAS for their zoning information. You can type the address in the ZIMAS database to receive detailed zoning information for every property.

Los Angeles City Planning Department

The American Legal Publishing Corporation provides all of the zoning information for Los Angeles. You can view all the zoning codes at

American Legal Publishing Zoning Information

The quickest method is to call your local planning department and ask a planner to provide you with the necessary information needed.

Ask what zoning your specific use requires. Be sure to ask about parking requirements.

There are different requirements for fast-food and full-service restaurants. Many cities require additional parking when the restaurant exceeds a specific size.

 

Is Restaurant Use Allowed?

 

Certain cities limit the total number of food establishments for a given area. For example, Main Street in Santa Monica, California, has limitations on the total number of food establishments.

It’s always a smart idea to discuss your plans with the planning department.

 

How Much Parking is Required for a Restaurant?

 

The biggest mistake both restaurateurs and many real estate brokers make is not understanding parking codes related to restaurant use.

Most cities require additional parking for restaurant use.

Parking significantly impacts where you can open for business.

The parking required is based on the square footage and type of use.

You can lose months of time and money when the property does not meet governmental parking codes.

The number of parking spaces required in Los Angeles typically depends on the type of restaurant (take-out, full-service, fast food) and the leased space’s size.

The parking requirements are a ratio.

For example, a 1,000 square-foot full-service restaurant will require ten parking spaces. (10/1,000 parking ratio).

If you are considering a free-standing building, determining the parking required is straight forward.

If the building is 1,000 square feet and you have ten or more parking spaces, you should have the necessary parking per city code for your use.

The calculations get more complicated when you’re dealing with a shopping center with multiple uses.

 

How to Perform Parking Calculations on Restaurants

Step 1) 

Request a rent roll or site plan showing the existing tenants’ names, type of use, and square footage for each Tenant.

Step 2) 

Using the city’s parking ratios, determine the required number of spaces for each current use.

For example, a retail store requires one space per 250 square feet.

If space is 1,000 square feet, divide by 250, and you can determine that the store requires four parking spaces.

(1,000/250= 4)

Step 3) 

Add up the total required spaces based on current uses.

Retail Space #1 = 1,000 square feet (parking spaces required 4)

Retail Space #2= 2,000 square feet (parking spaces required 8)

Proposed Restaurant Space #3= 1,100 square feet (parking spaces required 11)

Total parking Required for Shopping Center = 23

Step 4) 

Count the total number of parking spaces for the shopping center.

Total number of parking spaces 24

Step 5)

Determine if there is adequate parking based on your required parking and the total number of spaces after subtracting the total parking spaces required based on existing uses.

Parking Spaces Provided = 24

Parking Spaces Required = 23

Excess Spaces= 1

In this situation, the property has adequate parking to meet the required parking.

DO NOT SIGN A LEASE UNTIL YOU DETERMINE THERE IS ADEQUATE PARKING.

 

Off-site Parking

 

Another option is to lease additional parking from a neighbor. Rules vary by city. Some will require a lease with the same term as the lease for your restaurant.

 

Valet Parking

 

Valet parking may allow you to park additional cars in your existing parking field or off-site.

Parking credits are also available in some neighborhoods.

Tip: Existing restaurants are typically grandfathered and may not be required to meet the current code.

 

Health Department

 

In addition to zoning and building codes, restaurants are also subject to Health Department codes and permits.

The permitting process for the health department varies depending on region and current status of the property.

For example, if you buy a restaurant it will be much faster and will require less paperwork than converting a retail space to restaurant use for the first-time.

In most cases, a restaurant closed for more than 90 days will require much of the same information and take just as long to permit as a conversion from retail to restaurant use.

Many health departments publish their guidelines to open a restaurant on their website.

Let’s move on to Section 2 How to Find Restaurants to Buy.

 

 

Chapter 2: How to Find Restaurants to Buy

 

There are three basic approaches to buying a restaurant.

  • Internet Sites
  • Commercial Real Estate Brokers and Business Brokers
  • Contacting restaurant owners with unsolicited offers to buy their restaurant

Most searches begin on the Internet.

 

Restaurants for Lease Internet Sites

For a complete list of restaurant listing sites, click here.

 

Commercial Real Estate Brokers

 

Suppose you are going to buy a restaurant. In that case, there’s a good chance a commercial real estate agent or broker will represent the seller.

Whether you decide to hire your broker or buy a restaurant on your own, it’s essential to understand the commercial real estate broker’s role and how they get compensated.

 

Real Estate Brokers

 

The term “real estate broker” or “agent” is general.

It’s essential to understand the different roles of real estate brokers and how they are involved with commercial real estate aspects.

A broker must meet more stringent educational requirements; an agent works under a Broker’s license.

 

Commercial Real Estate Broker

 

Most commercial real estate agents or brokers specialize in a specific type of property or geographical area.

For example, office agents and brokers specialize in office buildings. Retail agents and brokers typically lease or sell retail properties and shopping centers.

WARNING!! It’s not a good idea to work with a broker that sells homes or works on a property type such as office buildings or apartments if you are opening a restaurant.

 

Who Does the Commercial Real Estate Broker Represent?

 

Most brokers work for the seller or Landlord. Some brokers called Tenant Representatives or “Tenant Reps” work primarily for tenants or buyers.

 

Beware of Dual Agency

 

Dual agency occurs when a single real estate agent represents both the buyer and seller or Landlord and Tenant in a real estate transaction.

A real estate agent can’t represent two opposing parties’ best interests in a negotiation.

Use your agent to protect yourself because the Landlord’s agent cannot represent your best interest.

 

Who Pays the Commission when you buy a restaurant?

 

When a seller hires a broker, they agree to pay a commission to the broker. Typically, the commission is a percentage of the sale.

For example, if the sale price is $500,000 a 10% commission will equal $50,000.00.

In most commercial real estate transactions, the seller’s broker agrees to split the commission with the buyer’s broker.

There are many business brokers that try to avoid splitting the commission so they can make more money. If you find yourself in this position its best to pay your broker hourly to negotiate on your behalf.

 

Buyer Broker

Suppose a buyer uses a broker to help them buy a restaurant. In that case, the buyer typically gets the services for free from the buyers’ broker.

Most experienced Buyer Brokers will require a minimum fee if the commission is too small to cover their time.

 

Should You Use a Real Estate Broker to Buy a Restaurant?

 

In most cases, using a broker will save you time, provide access to restaurants for sale that are not public knowledge, and help negotiate a better lease than you would on your own.

A few reasons to consider hiring (the right) real estate broker:

  • They have access to information that you don’t.
  • As a professional, they know more about governmental regulations, rents, and lease agreements
  • No cost to you for their service in most cases
  • Save time

Hiring the right restaurant broker can be one of the smartest decisions you make. An experienced restaurant broker can save you thousands of dollars and ensure you avoid making mistakes that can be fatal to your success.

Restaurant properties are unique.

A good restaurant broker understands lease agreements, health department, sanitation, and building department regulations can help you avoid costly upgrades to your restaurant.

A knowledgeable restaurant broker knows architects, attorneys, expediters, and contractors who specialize in restaurants.

 

Getting the Most from Your Restaurant Broker

 

There are a few key goals you should keep in mind when working with a restaurant broker:

  • You want to see all opportunities that meet your requirement.
  • You want the restaurant broker to negotiate in your best interest.
  • You want the restaurant broker to feel fairly compensated and motivated.
  • You want the ability to cancel the agreement if you’re not satisfied.
 

Should You Work with One or Many Brokers?

 

This answer is counter-intuitive. You would think working with many agents would provide access to more restaurants for sale.

The opposite is true.

An experienced restaurant broker won’t spend the time needed to work with you on a non-exclusive basis.

There is a high risk of not receiving compensation if you buy a restaurant through a competing agent.

This method also produces a race to “sell” you a property quickly rather than invest the time to find the right property.

 

Exclusive Representation to Buy a Restaurant

 

An experienced and qualified restaurant broker only works on an exclusive basis. An exclusive agreement states the broker will work on your behalf, and you will work through the broker.

You receive the attention needed. The broker has assured compensation if you complete a transaction.

 

Problem with Commissions

 

Since most restaurant brokers work on a contingency basis, they do not receive any compensation if you do not buy a restaurant.

They are also compensated based on the total sale price.

If your requirement is too small, you won’t find a qualified person to help.

It takes the same amount of time to sell a high priced restaurant as a low priced restaurant.

If you’re looking to buy a restaurant priced under $250,000, the commission may not justify the time involved.

There are solutions if you don’t want a broker or can’t find one.

 

There is a Solution—Minimum Fee

 

A minimum fee guarantees the restaurant broker compensation, and you receive the best deal possible.

To ensure you receive all available restaurants for sale and your restaurant broker negotiates in your best interest is to agree on a minimum or flat fee.

Typically, the agreement states a minimum fee. If the total commission does not cover the broker fee, you will pay the difference.

For example:

Minimum Fee = $10,000

Commission paid by seller= $8,500

Total Fee paid by Client = $1,500

 

Term of Agreement

 

If you are unhappy with your broker, don’t get locked into a long-term agreement.

Make sure you have the right to cancel the deal.

You will need to agree the broker is entitled to compensation for properties they show you for a certain period after canceling the agreement.

Still, you will be free to negotiate or work with anyone else going forward.

If you follow the suggestions above, working with a restaurant real estate broker should save you both time and money buying your next restaurant.

 

Hourly or Flat Fee Consulting

 

Suppose you are willing to do the groundwork.

In that case, restaurant real estate advisors will help you negotiate a purchase agreement, protect your interests, and answer your questions for a flat rate or hourly fee.

 

Viewing Restaurants For Sale

 

Before scheduling a meeting to see the inside of any restaurants for sale, it’s a good idea to drive by the property and confirm this is a location and neighborhood that meets your general criteria.

If you view a restaurant that is currently open for business, don’t ask any employees or neighbors’ questions about the property.

In most cases, the employees are not aware of it if you would like to see the interior act as a customer and order something to eat or drink.

You will need to schedule a meeting to see the kitchen and areas not visible as a customer.

Often in this situation, the existing Tenant is being forced to leave and may not be very cooperative.

 

Buying a Restaurant-Off-Market Deals

 

Suppose you are looking to buy a restaurant in a particular area or type of property.

In that case, there may not be any existing restaurants for lease or sale on the market.

In this situation, you will need to find an “off-market deal.”

You can achieve this by contacting the existing restaurant owner to see if they will consider selling.

You can approach the owner in person or try other means such as a letter or phone call.

If the owner is not interested in selling, leave your contact information and request they contact you in the future if anything changes.

Suppose the owner is not willing to sell. In that case, you can approach the property owner to determine if the lease will be expiring or is currently on a month-to-month lease.

Or, if the Tenant has a poor relationship with the Landlord, has a history of late payments, or the Landlord just wants a new concept for their property.

There are many data sources available to research the contact information for both tenants and landlords.

 

Tracking Restaurant Listings When You Buy a Restaurant

 

Create a spreadsheet for listings.

Fill in the address, contact information, and brief description based on your communications.

 

Analyzing the Deal When You Buy a Restaurant

 

Before you can receive detailed information about the potential restaurant you want to buy the seller will often require a non-disclosure agreement.

 

What is a Non-Disclosure Agreement?

 

A non-disclosure agreement (NDA), also known as a confidentiality agreement (C.A.), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (S.A.), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share for specific purposes but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement.

TIP: To speed up the process, use a service such as DocuSign to accept digital signatures.

Now that you have a list of potential restaurants to buy let’s move onto Chapter 3-Negotiating the Deal When You Buy a Restaurant.

 

Chapter 3: Negotiating the Deal When You Buy a Restaurant

 

Preparing the Offer

 

The purchase process starts when you submit an offer to purchase your restaurant.

There are two types of offers.

Letter of Intent

A Letter of Intent is typically a non-binding agreement used to summarize the basic deal terms incorporated into a Purchase Agreement.

 

Purchase and Sale Agreement

 

A Purchase and Sale Agreement is typically a binding document and used as the basis to prepare escrow instructions in states that use Escrow.

Which should you use?

A Letter of Intent is best if you would like to start the process without incurring escrow fees.

The Letter of Intent should require both the Seller and Buyer to complete certain items before entering into a binding agreement or opening escrow.

The Letter of Intent is used to complete investigations before signing a binding contract and incurring expenses.

LETTER OF INTENT TO BUY A RESTAURANT

Get Your Letter of Intent Template Here

Prepare two originals for signature by both Buyer and Seller.

Proof of Funds

 

Before opening Escrow, the seller will want proof of funds to confirm you can complete the sale and qualify to assume the lease. Provide recent bank statements or bank contact if requested by the seller.

 

Pre-Escrow Period

 

The Letter of Intent may require you to complete your physical inspections, review the financial condition of the business if applicable, and approve the Lease agreement.

 

Physical Inspection

 

You should conduct a physical inspection of the premises as soon as possible. Issues related to the condition of the Premises or equipment can be a reason to request a price reduction.

The seller can agree to fix any problems, give you a credit for repairs, or hold firm on the sale price.

At this point, either the Buyer or Seller (or both) can decide not to move forward with the sale.

 

Due Diligence

 

You should request the following from the seller.

  • Lease and any amendments to lease
  • Licenses
  • Permits
  • Architectural plans
  • Certificate of occupancy
  • Conditional Use Permit
  • Financial statements
  • Tax returns
 

Lease Assignment/ New Lease

 

The sale will require that you either assume the current lease or negotiate a new contract with the landlord.

Notify the landlord and request an assignment of lease (or a new contract if applicable). The lease agreement may require a non-refundable fee paid to the landlord, to consider the assignment. Request that the Seller pays this cost.

You should be prepared to provide a credit application and two or three years of tax returns for the landlord’s review. Check with the landlord to see what information will be required and if you need to use the landlord’s forms or a standard credit application.

REQUEST FOR LEASE ASSIGNMENT FORM

If you are requesting a new lease, be very specific in the Letter of Intent or Purchase Agreement that terms of the new lease shall be a contingency.

In most cases, the landlord will not agree to provide you with more attractive terms and accept less rent than currently offered in the lease unless your financial statement is strong or market conditions have worsened.

Landlord approval of an assignment is often the biggest hurdle to buying a restaurant. For many different reasons, the landlord may be slow to respond or maybe less than cooperative.

If you have completed the steps above, you now have an accepted LOI or Purchase and Sale Agreement, have verified the buyer’s funds, and you are ready to open Escrow.

Congratulations!

Let’s move on to Chapter 4: Escrow the Final Stage to Buy a Restaurant.

 

Chapter 4: Escrow the Final Stage to Buy a Restaurant

 

By this time, you negotiated with the seller and agreed on basic terms and conditions. It’s now time to close in on the final stage of buying a restaurant: Escrow.

Now you will:

Open Escrow to protect yourself during the sale

Comply with Bulk Sale Laws

Schedule a final walk-through, close escrow, and complete your sale

If you’ve conducted the sale’s previous steps carefully, this final stage should be relatively quick and easy. By the end of it, you will have keys to your new restaurant.

Let’s begin with escrow basics.

 

What is Escrow?

 

Escrow is a neutral third party used to protect all parties in a transaction. The escrow officer will follow the directions provided in the Purchase and Sale Agreement or Letter of Intent, take care of disbursing funds, ensure that all creditors get paid, and ensure that the buyer receives title free of any liens.

What about states that don’t use Escrow?

Not all states use Escrow. In some states, an attorney, title company, or real estate broker handles all or a portion of the transaction. The website below provides an overview of the procedures used in each state.

Guide to States that use Escrow

 

 

Escrow Fees

Fees and charges for escrow are based on a variety of factors including the sale price, document preparation fees, newspaper publishing fees, and lien searches.

Your escrow company can provide a written estimate of cost and expenses.

Escrow fees and costs are typically split 50%/50% between buyer and seller.

 

Opening Escrow

 

The Buyer or Seller will deliver the Purchase and Sale Agreement to Escrow. The buyer is required to provide a deposit check to Escrow within the number of days specified in the contract.

The escrow officer will create an escrow account and provide an escrow number and supplemental escrow instructions for signature by both Buyer and Seller.

The supplemental escrow instructions incorporate the terms provided in the agreement and provide additional terms and conditions of the escrow.

 

Sample escrow instruction used to buy a restaurant

SUPPLEMENTAL ESCROW INSTRUCTIONS

The attached ASSET PURCHASE AGREEMENT (hereinafter the “Agreement”), by and the parties mentioned below shall serve as your Escrow Instructions and the Supplemental Escrow Instructions with General Provisions attached to these instructions are by reference hereto incorporated herein and made a part hereof and have been read and are approved by the parties to this escrow and you are authorized to act thereunder insofar as the closing of your escrow is concerned. In the event of a conflict between the Agreement and the Supplemental Escrow Instructions with General Provisions, the Agreement shall prevail.

This instruction is given on December 9, 20XX, by and between the SELLER(S) (hereinafter called Seller) SELLER NAME, LLC, and the BUYER(S) (hereinafter called Buyer) BUYER NAME, Inc.

The subject of this escrow, which Seller owns and agrees to sell and Buyer agrees to purchase from Seller, are all assets of a business known as NAME OF BUSINESS

located at: XXXX MAIN STREET, SANTA MONICA, CA 90405
consisting of (check “X” if applicable) [ X ] furniture, fixtures, and equipment, [ X ] lease, [ X ] leasehold improvements, and items as per the Agreement on the following terms and conditions:

The purchase price of said assets shall be the sum of………………………………… $100,000.00

Payable as follows:
Initial deposit in the amount of………………………………………………………………$10,000.00
Cash through balance, immediately upon the removal of Lease Contingency………….…$90,000.00

This is all Cash-Offer transactions without the loan.

The following is for clarification purpose:

The acceptance Date Is December 8, 20XX.

The escrow Opening Date Is December 9, 20XX.

CLOSING: Escrow shall close upon earliest legal published date, on or before January 15, 20XX, or the date mutually agreed by the parties but no later than 60 days from the Escrow opening date, and Buyer shall deposit in escrow on or before two (2) days prior to the close of escrow by cashier’s check the balance of all monies due to affect the same. The parties agree to do all things necessary to close the escrow on the date set forth or on completion of the conditions so stated herein.

  1. PRORATIONS: Prorate as of Close of Escrow if agreed: Personal Property taxes for the current fiscal year, ONLY if the tax bill is presented herein prior to the close of escrow.

Charge Buyer and Credit Seller Lease/Security deposits in the amount of (as per Lease, if any).
Current Month’s Rent prorated to date of possession.

COSTS: The Seller and the Buyer shall pay their respective escrow fees, and the cost of this transaction shall be paid 50% by the Buyer and 50% by the Seller.

Seller hereby warrants and guarantees that he has not operated the subject business under a name other than that which is being presented herein. Seller shall deliver to the buyer through escrow a list of all businesses and their addresses which the Seller has owned within the last three years. THIS LIST SHALL BE DELIVERED THROUGH ESCROW PRIOR TO THE PUBLICATION OF THE NOTICE OF BULK SALE.

RELEASES:

Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the State Board of Equalization.

Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the Employment Development Department.

Seller shall furnish the buyer through escrow not as a condition of this closing but prior to the final disbursement of funds, a tax release from the County Tax Collector, Business Tax Division.

Buyer hereby agrees and instructs Escrow Holder to withhold the sum of $10,000.00 from Seller’s net proceeds due at closing for State Board release.

You are to notify each respective state agency from which you are to receive either a release or certificate of this transfer and furnish them with any further information which may be required by these agencies. In the event the certificates of releases from the Employment Development Department have not been deposited with Escrow Holder prior to the closing of this escrow, you will receive instructions from the Buyer and Seller to withhold an agreed amount from Seller’s proceeds pending such releases. Seller warrants to Escrow Holder and Buyer that Seller’s outstanding obligations to these agencies will not exceed the number of monies held pursuant to this instruction.

SEARCHES AND PUBLICATION: Escrow Holder is authorized and instructed, at the expense of the parties, to A) Record and publish an appropriate Notice to Creditors of Intended Sale; B) Forthwith obtain from the Secretary of State, Statements of Information on 1) Name of the Seller at any and all addresses; 2) Name of the business at the business address. Said searches to be on the State and County levels. Escrow Holder is authorized and instructed to deduct from proceeds as deposited into escrow, any portion of funds for the payment of reports, and demands, etc. in order to comply with the closing of this escrow, prior to the close of escrow. The parties acknowledge that in the event this escrow is canceled that no portion of the fees/costs paid will be refunded to the parties.

SOLE OWNER: The Seller herein warrants that he is the sole owner of a said business with a full right to sell or dispose of it as he may choose and that no other person or persons whatsoever have any claim, right, title, interest, or lien in, too, or on said business except as stated herein.

LLC DOCUMENTS: Prior to the publication and recording of Notice, there shall be deposited in Escrow by the Seller, a Copy of LLC1, LLC12, and Operating Agreement to clarify the authorized signatory.

CORPORATION RESOLUTION: Prior to the close of escrow, there shall be deposited in Escrow by the Buyer, a copy of the Corporate resolutions authorizing the purchase assets which Escrow is concerned, together with the authority of the undersigned officer to transact the purchase of same and to execute any and all documents in behalf of the corporation to accomplish the sale and transfer of same.

POSSESSION: Possession shall be granted to and taken by Buyer as of the close of escrow.

ALLOCATION OF PURCHASE PRICE: The parties do agree and jointly stipulate that the purchase price consists of the following values paid for the specific assets indicated as follow:

Fixtures, Furniture, and Equipment $10,000.00 Leasehold Improvement $90,000.00

BILL OF SALE-FIXTURE LIST: The parties shall immediately, or in any event, as practical, cause to be deposited in escrow an itemized list of the furniture, fixtures, and equipment being conveyed, approved in writing by both parties. Seller shall deposit herein his good and valid Bill of Sale covering the same, warranting them free of any liens or encumbrances.

SALES TAX – FIXTURES AND EQUIPMENT: Buyer shall reimburse Seller through escrow sales tax on fixtures and equipment based on a valuation to be determined and provided to Escrow Holder prior to the close of escrow.

The undersigned Buyer and Seller acknowledge that they are aware of the governmental regulations which require that all funds deposited into escrow must be collected and available for withdrawal prior to the disbursement of the same from escrow. Pursuant to these requirements, all funds deposited into this escrow shall be in the form of cash, a California Bank’s Cashiers Check or wire transfer, except in the case of initial deposits. In the event of deposit(s) of any other type of funds, the Escrow Holder is authorized and instructed to delay the closing of escrow pending written confirmation of the clearance of all deposits.

The parties agree that for purposes of this escrow, any instructions or amendments executed by the parties and transmitted to Escrow Holder by electronic facsimile shall be valid and enforceable as original signed documents to Escrow Holder.

AMENDMENTS: The parties do agree that in all matters pertaining to this Escrow the signature of any one of the Buyers and any one of the Sellers shall suffice for Escrow amendments.

NO REPRESENTATIONS: The parties hereto agree that no representations have been made by either party other than those specifically set forth in this agreement between the parties, superseding all prior agreements whatsoever. It is further understood and agreed that the Buyer has made his own independent investigation of the subject business, has satisfied himself with his ability to conduct the same, and is now purchasing the said business with the clear and distinct understanding and agreement that all profits are future, to be arrived at from his own resources and labors.

SELLER INDEMNITY: Except as otherwise provided herein, Seller shall indemnify and hold the buyer and the assets of said business, free and harmless from any and all claims, losses, damages, injuries, and liabilities arising from or on account of seller’s operation of said business or seller’s ownership of any assets of the said business that are subject to this escrow or seller’s ownership or occupation of said business. Seller further agrees to indemnify and hold the buyer including said business, and the assets if the said business, free and harmless from any and all lawsuits, actions, causes of actions, or judgments arising from or on account of seller’s operation of said business or seller’s ownership of any assets of the said business that are subject to this escrow or seller’s property.

LEGAL ADVICE: THE BUYER AND SELLER HEREIN ACKNOWLEDGE THAT THEY HAVE BEEN ADVISED TO SEEK THE ADVICE OF LEGAL COUNSEL BEFORE THE EXECUTION OF THESE ESCROW INSTRUCTIONS AND THE DOCUMENTS BEING CREATED HEREIN.

CANCELLATION FEES: In the event, this escrow is delayed for two (2) months from the most recent closing date agreed by the parties or if the escrow is canceled, and if the delay or cancellation is caused by either of the parties to this escrow, the Escrow Co. shall be entitled to receive an escrow administration fee in proportion to the services provided by Escrow Co.

SELLER’S INITIALS: /                                                                                       BUYER’S INITIALS: /

HOLD OPEN FEES: If funds are held by you following the close of escrow, in order to compensate you for the administration and monitoring of this escrow, you are authorized to charge, and deduct from funds on deposit herein, a hold-open fee of $75.00 for each month this escrow has a balance therein following two months after the close of this escrow.

SPECIFIC INSTRUCTIONS: These specific instructions are made of the Buyer’s and Seller’s own free will, under no duress with a full understanding of the consequences, not relying on any information furnished or statements made by the Escrow Holder as to the conditions of the escrow, the title to the property and personal property involved and ultimate outcome of the escrow or otherwise.

HOLD HARMLESS: The Buyer and Seller herein each agree to hold Escrow Co. harmless from any and all liability and/or responsibility that might arise from the Escrow Holder’s compliance with this escrow transaction. Should a lawsuit be filed against Escrow Co. for compliance with these instructions, the parties hereto agree to indemnify and hold Escrow Co. harmless and agree to pay all attorney’s fees incurred by Escrow Holder in defense of action except willful misconduct and/or negligence.

ENTIRE CONTRACT: Time is of the essence. No extension of time for performance of any act or obligation shall be deemed an extension of time for any other act or obligation. All prior agreements between the parties are incorporated in this agreement which constitutes the entire contract. Its terms are intended by the parties as a final expression of their agreement with respect to such terms are included herein and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. The parties further intend that this agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this agreement.

It is hereby agreed and acknowledged by the parties that the buyer is responsible for taking necessary steps and procedures OUTSIDE OF ESCROW, in order to change ownership of the business on any/all governmental license and/or permits, obtain a business license and/or business tax registration certificate from City clerk office, health license permit, seller’s permit from State Board of Equalization, check all applicable department in the City and obtain a necessary permit(s) including Conditional use Permit, open an account to Employment Development Department, obtain an education for food stamp program, and/or change ownership for utilities such as telephone, gas company, Department of Water and Power, and electricity. Further, the seller agrees to take necessary steps OUTSIDE OF ESCROW, in order to terminate, withdraw, or close his account or permit(s). The parties hereby hold the escrow holder harmless and relieve of any liability and/or responsibility for the foregoing.

IT IS ACKNOWLEDGED BY BUYER AND SELLER THAT IN THE EVENT OF CANCELLATION, THE FUNDS DEPOSITED IN TRUST ACCOUNT OR IN ESCROW ARE NOT RELEASED AUTOMATICALLY OR PER REQUEST BY SELLER OR BUYER ONLY. RELEASE OF FUNDS IN ESCROW REQUIRES WRITTEN CANCELLATION/AGREEMENT EXECUTED BY BOTH PARTIES, JUDICIAL DECISION OR ARBITRATION.

BUYERS:

BUYER, Inc., a California Corporation

By:
John Buyer, Authorized Signatory

SELLERS:

SELLER, LLC, a California limited liability company

By:
Suzy Seller/Manager

 

Escrow will require the following information from the Seller and Buyer:

 

From SELLER (Current Owner):

  • Business Name & Address (Exact entity name or individual name)
  • Doing Business As (DBA)
  • All other business names and addresses used in the last three years
  • Home/Forwarding Address, other than business address (EDD requirement for post-closing items)
  • Tax I.D. Number (if corporation/entity) or Social Security Number (if an individual)
  • Employment Development Department Account Number (If you have employees, Escrow will need the EDD # to order the necessary release from the Employment Development Department)
  • Sales Tax Permit Number (In connection with the State Board of Equalization)
  • Copy of your Sellers Permit
  • Allocation (Breakdown) of the Purchase Price
  • Liquor License Number (If the transaction involves liquor license transfer)
  • Contact Information (Phone number and email address)

 

From BUYER:

  • Deposit to open Escrow, as agreed upon, made payable to Escrow Company
  • Buyer’s Name & Address (This must be exact – If the buyer is forming an entity, Escrow will need a copy of the Articles of Incorporation)
  • Forwarding Address, for post-closing items (If different from above)
  • Tax I.D. Number (if corporation/entity) or Social Security Number (if an individual)
  • Employment Development Department Account Number (If you have employees, Escrow will need the EDD # to order the necessary release from the Employment Development Department)
  • Contact Information (Phone number and email address)
 

What Happens in Escrow when you buy a restaurant?

 

The following is a summary of the escrow process and does not attempt to explain every step of the transaction.

 

Bulk Sale Notice Requirements

 

The Bulk Sales Act is part of the Uniform Commercial Code. Most states adopt a version of the Uniform Commercial Code, and accordingly, the Bulk Sales Act.

The Bulk Sales Act, as adopted in California, provides that where a debtor proposes to sell more than half of its inventory and equipment, not in the ordinary course of business, the buyer must give notice.

Notice is in two forms:

Record notice of sale at the county recorder’s office where the assets are

located; and

Publish notice of sale once in a newspaper (in general circulation) where the assets are located. The debtor does not have to mail notice to its creditors before the bulk sale. Recordation and publication must happen at least twelve (12) days before the sale.

Failure to comply with the Bulk Sale Act may cause the buyer to be liable to creditors not paid in full.

The primary purpose of the Bulk Sale Act is to provide a debtor’s creditors with notice so as to have their claims paid (or take protective action) before the debtor transfers assets and makes off with the sale proceeds and to insulate the buyer from the debt of the seller.

 

Tax and Lien clearances

 

The escrow officer will obtain clearance certificates from taxing authorities such as the Employment Development Department, Franchise Tax Board, and State Board of Equalization on behalf of the buyer to ensure no successor liability to any taxing agencies. Any liens recorded need to be paid before the close of Escrow.

 

State Board of Equalization

 

In most escrows, unless the business closed and the State Board of Equalization has final tax returns, Escrow will be required to hold back a portion of the sales proceeds to pay any taxes that may be due.

To determine tax proceeds required at closing, Escrow will often review the last two quarterly tax returns.

WARNING:

State Board of Equalization is often the cause of delays to close Escrow. If the business will close, file your returns as soon as possible. If the seller is delinquent on taxes, notify Escrow as quickly as possible to determine a course of action to avoid additional delays.

Escrow submits a request for a release from the State Board of Equalization (“BOE”) at the close of Escrow because the Seller will need to file his final return and pay sales tax on the fixtures and equipment. The BOE has 60 days to reply to the request with either a release or demand with any amounts owed.

If you have any concerns about the seller’s history of payment negotiate to hold back as much of the purchase price as possible until escrow receives a release.

 

UCC Search & Tax Lien Search

 

A UCC-1 financing statement (an abbreviation for Uniform Commercial Code-1) is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor.

Escrow will order a UCC search, and tax lien search to determine if there are any creditors or tax agencies that currently have claims on any assets.

 

Final Walk-Through

 

A final walk-through should be scheduled a few days before the close of Escrow. You will confirm the fixtures and equipment are all present and in good working condition.

If the inventory is part of the sale, a value is assigned.

Buyer and Seller will notify Escrow in writing that they are ready to close Escrow. The escrow officer will prepare the closing papers, which include the following:

 

Bill of Sale.

 

For the equipment and fixtures.

 

Closing Statement.

 

The closing statement provides both Buyer and Seller a breakdown of the accounting showing the total credits and debits paid by each party. If applicable, certain expenses such as rent or prepaid expenses get prorated.

 

Promissory Note.

 

 

If the seller is providing a loan for part of the purchase price, a promissory note is prepared by Escrow and secured by a UCC1 security agreement.

 

Inventory.

If the stock is part of the sale ( food, beverages, paper, and supplies), you will pay for these items.

 

Liquor license transfer.

 

If a liquor license is part of the sale, Escrow will complete the processing of the liquor license.

Once all of the above is complete, Escrow will disburse funds, and you will receive the keys.

 

Congratulations on buying a restaurant!

If you followed all of the steps provided, you should have experienced a smooth transaction.

Do you have any questions? Contact me.

Cheers!

Mark

 

Time needed: 90 days.

How to Buy a Restaurant

  1. Create a Business Plan

    Create a Business Plan including the financial information you need to buy a restaurant.Create Business Plan

  2. Research Your Competition

    Research your competition and gather their sales informationResearch Your Competition

  3. Determine How Much Rent You Can Pay

    Calculate how much rent you can pay as a percentage of projected sales.How to calculate rent per square foot

  4. Search Restaurants for Sale

    You can hire a restaurant broker or search restaurants for sale online. The Ultimate Loopnet.com Tutorial for Restaurateurs

  5. Analyze the Deal

    Use your research to determine the value of the restaurant.Analyze Deal

  6. Negotiate the Deal

    You or your broker will submit a Letter of Intent ( LOI) or offer to purchase.negotiate the deal

  7. Due Diligence

    You will have a period of time to inspect the financial records, lease agreement and condition of the restaurant.due diligence

  8. Open Escrow

    Open escrow to protect yourself during the sale process. Escrow will notify all creditors of the sale, provide a lien search, and handle the transfer of assets.open escrow

  9. Close Escrow.

    You will do a final inspection and notify escrow you are ready to close. Escrow will send closing documents to you and the seller for signature.negotiate restaurant for lease

  10. Pick-up the Keys

    Congratulations! You are now the new owner of a restaurant.landlord delivery of restaurant space

Filed Under: Uncategorized

The Ultimate Loopnet.com Tutorial for Restaurateurs

November 14, 2020 by Mark Chase Leave a Comment

 

The Ultimate Loopnet.com Tutorial for Restaurateurs

 

The Ultimate Loopnet.com Tutorial for Restaurateurs is a super detailed tutorial for restaurateurs.

 

In this new tutorial, you’ll learn, step-by-step, how to:

 

  • Find restaurant properties for lease
  • Save properties to a handy list
  • Create and print reports
  • Contact landlords and brokers

Let’s dive right in.

 

Why Use Loopnet to find restaurant spaces for lease?

 

What is Loopnet?

 

Loopnet.com is the largest commercial real estate marketplace.

 

If you are looking to lease a restaurant space, it’s an excellent place to start.

 

Restaurants are unique, and many restaurateurs are looking to lease restaurant space with an existing kitchen.

 

Loopnet.com advertises many types of properties, including multi-residential, office buildings, industrial, land, and shopping centers, to name a few.

 

Loopnet provides many search options

 

It’s critical to understand how to search for specific property types, such as restaurants.

 

This Step-by-step guide will teach you how to use Loopnet’s search features quickly.

 

Before getting started, you should decide if you will buy a restaurant or lease a restaurant.

 

This tutorial will walk you through looking for vacant retail and restaurant spaces on Loopnet that may require you to partially or fully build-out your area.

 

Simple 10 Step Guide to Find a Restaurant for Lease on Loopnet

 

Step 1

 

Start by creating a free Loopnet account and login.

 

Step 2

 

Select Advanced search from the main search page.

 

Loopnet Advanced Search

 

Decide if you are searching for retail space or existing restaurant space. In this example, we are selecting Retail.

 

Tip: If you only want to see space currently built-out as a restaurant, select “Restaurants”.

 

Step 3

 

Select the “lease” tab,

property type retail,

city culver city

and size range 1,000-2,000 square feet

 

Loopnet retail search

 

View Search Results on Loopnet

 

The Loopnet search results returned 24 results. You can view the results on the map or a summary of each listing in the right column.

 

Loopnet search results

 

Step 4

 

Click either the map icon or the property summary to see a detailed description of the property.

 

Loopnet detailed search result

 

How to Contact a Broker on Loopnet

 

Step 5

Use the Loopnet contact form on the right to contact the landlord’s broker.

 

Loopnet contact form sample

 

Saving Your List of Restaurants

 

Step 6

 

To save a list of properties on Loopnet, go to the search results page. Click on the heart icon.

 

Loopnet click heart icon to save

 

A pop-up will appear. Click to create a new folder. For example, “West LA & Downtown”

 

create a folder

 

Step 7

Click the icon for each property you wish to save into the folder created.

 

save listing

 

How to View Your Favorite Properties

 

Step 8

 

Once you have saved all of the properties, click the Loopnet menu button on the top left side and select my favorites to view your list.

 

loopnet menu

 

Step 9

 

Select My Favorites on the left sidebar of Loopnet

 

my favorites

 

How to Create a Property Report

 

You will see a list of your saved folders.

Step 9

Select the radio button next to your My Favorites list. In this case, “West LA & Downtown Restaurants.

 

select radio button

 

Press create report

 

Step 10

 

Select one of the Loopnet report options. In this example, we will choose Listing Full Detail Report.

 

select template

 

Your Loopnet report will display, and you have the option to edit and show some of the fields.

 

If you make any changes press update to generate a new report.

 

Rename the report so you can keep track of different reports you may run.

 

If you want to save a PDF version of the report, click download as PDF.

 

Search Tips:

 

If you do not receive many results, broaden your search.

 

For example, leave out a size range.

 

If you only want to view space currently built out as a restaurant space, use “Restaurant”.

 

Please be advised there will be many results that are not restaurant use.

 

Next Steps.

 

1) Sign-up for your Loopnet.com account

2) Try searching for a restaurant

3) Comment below about your results

4) Read “Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant“

 

Time needed: 7 minutes.

  1. Create Free Loopnet.com Account

    Create your free account and login to Loopnet.com

  2. Start Your Search

    Select Advanced search from the main search page.Select Advanced Search

  3. Select Your Search Criteria

    Select the “lease” tab, property type retail, city and size range .retail search

  4. View Search Results

    Click either the map icon or the property summary to see a detailed description of the property.search results

  5. Use Contact Form

    Receive more information by using the contact form.contact form sample

  6. Save Your Favorite Listings

    To save a list of properties on Loopnet, go to the search results page. Click on the heart icon.save listing

  7. View List of Favorite Listings

    Once you have saved all of the properties, click the Loopnet menu button on the top left side and select my favorites to view your list.loopnet menu

  8. Click Favorites

    my favorites

  9. Create a Report

    You will see a list of your saved folders.
     
    Select the radio button next to your My Favorites list. select radio button

  10. Print a Report

    Select one of the Loopnet report options. In this example, we will choose Listing Full Detail Report.select template

Filed Under: Uncategorized

  • 1
  • 2
  • 3
  • …
  • 6
  • Next Page »

Find it Here

Recent Posts

  • Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant
  • Restaurant for Sale-The Sellers Guide to Making the Sale
  • Rent for Restaurant-How to Determine the Right Rent for a Restaurant
  • How to Buy a Restaurant: The Definitive Guide
  • The Ultimate Loopnet.com Tutorial for Restaurateurs

Let’s get started on your project.

Contact me to kick things off. This will be more fun than you think!

Get in Touch

  • Home
  • About
  • Guides
  • Blog
  • Contact Us
  • (310) 383-6558

© 2014–2023 restaurantrealestateadvisors.com