Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant

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

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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

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

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.

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.

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.

Restaurants for Lease-The Ultimate Guide to Leasing a Restaurant

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.

Mark Chase

Restaurant Real Estate Advisors