Do you ever feel like someone is just a few steps behind you waiting to pull the rug out from under your feet? Are you always worried that, just when you’ve saved enough money for vacation, you’ll get stuck with a huge car repair bill out of nowhere?
If you sign a lease for your restaurant, your first rent increase can feel the same way. Out of the blue your rent has been increased. How is this possible when you have only been open six months?
Why Is My Rent Going Up?
Most lease agreements include a rent increase. Often these increases occur annually on the anniversary date of the lease. I was recently interviewed by Gabe DiSilva for his podcast, and Gabe had mentioned how his rent increase occurred much sooner than he expected.
This can have the same effect as receiving a big repair bill that you are not expecting. If this happens during your first year of business before you are profitable it can cause a lot of stress.
I told Gabe this is a common issue if you don’t pay attention to the little details in a lease agreement. The culprit behind this sneaky little surprise is two words:
If you’re married and forget about your anniversary you may wind up sleeping in the dog house. The same thing will happen if you don’t get your anniversary dates right in your lease.
Your rent increases are triggered according to the anniversary date of your lease. But, when is your anniversary? If you received a free rent period to build your restaurant, then you have two different anniversary dates.
Lease Commencement Date and Rent Commencement Date
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 a marriage when you start paying rent.
How To Never Forget Your Anniversary
Most restaurateurs believe their rent will increase at the end of every twelve months. If you sign a lease in January, but did not start paying rent until April when you opened for business, you expect your first rent increase the following April.
The solution to this problem is to clearly identify both the lease commencement and rent commencement in the lease. Many lease agreements only reference lease commencement.
Set The Date For Your Anniversary
You can set the date for your anniversary, your rent increase, in two steps.
The first step is to clearly spell out in the lease both the lease commencement date and rent commencement date. This may be stated such as the lease commencement date is January 1, 20xx. The rent shall commencement the later of 120 days after the lease commencement date or tenants opening for business, whichever is sooner.
In this situation, both parties will agree on the actual rent commencement date in the future, either 120 days from signing the lease or when the tenant opens for business.
The next step is to clearly spell out when the rent increases apply. That’s the anniversary date. For example, the rent shall increase annually by 3% each year on the anniversary of the “rent commencement date”
By clearly identifying the lease commencement and rent commencement date, and then using the rent commencement date as the anniversary date, your rent increase will occur when it should at the end of every 12 months.
When is your next rent increase?