Business and Operations
Commercial lease renewal do’s and don’ts for pizzeria tenants
By Jeff Grandfield
Is your pizzeria’s lease coming up for renewal soon? Here are a few commercial lease renewal “do’s and don’ts” that Dale Willerton – The Lease Coach – will be discussing in more detail as a featured speaker at the Canadian Pizza Summit on Monday, Oct.15, in Toronto.
Create competition for your tenancy. Negotiate on multiple locations simultaneously – especially with lease renewals, even if you don’t want to move. Create options and play one landlord against another. Share with each landlord that you are receiving other proposals. Make the landlord earn your tenancy or re-earn your renewal.
Start the planning and site selection process well in advance. For existing pizzerias and lease renewals, begin 12 to 15 months in advance. This allows ample time for negotiating, completing paperwork, searching for alternative sites (if necessary) and accounting for Murphy’s Law.
Talk to other tenants. For lease renewals, talk with other tenants in the building who have recently renewed leases. Ask how these renegotiations went and what the landlord was willing to agree to in terms of rental rates and further tenant incentives.
Don’t have false optimism. When pizzeria owners tell us their restaurant isn’t doing well, but they want to renew their lease anyway, this is false optimism. Unless you change location or something else about the way you do business, you should not realistically expect your next five years to be better than your first five years. Moving can be difficult, frightening, time-intensive and expensive; however, sometimes, this is absolutely necessary.
Don’t settle for your same rental payment. Achieving a rent reduction on your lease renewal is a very real possibility. If your landlord is leasing space to new tenants at less than what you are currently paying, a rent reduction for you should be achievable. If your current rental rate is artificially high because of your last tenant allowance, a rent reduction on your renewal term could also be in order. Again, talk with other tenants who have recently renewed or moved in to see how much they are paying.
Don’t allow the landlord to retain your deposit. If you have paid the landlord a deposit, ask for this back upon your lease renewal date. You have proven yourself as a responsible tenant over your initial term. Why should your landlord keep this money?
Brokers … friend or foe? Real estate agents and brokers typically work for the landlord who is paying their commission. It is not normally the agent’s role to get the tenant the best deal. It is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more commission the agent earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent’s listing. Your tenancy is more desirable to the listing agent if he or she can avoid commission-splitting with other agents.
Don’t disregard your operating costs. Having your lease and/or operating costs analyzed is an effective way to keep your landlord and property manager accountable. Frequently, pizzeria tenants pay inflated common area maintenance (CAM) because of padded or miscalculated operating costs. Often, it can be advantageous for groups of tenants sharing the same property to unify for an operating-cost analysis.
Don’t automatically exercise options. Even though you have a renewal option, you may not want to exercise it – especially if the renewal term’s rental rate automatically increases or can’t decrease. If you are certain your landlord wants you to stay and market rates (the “going rate” in your neighbourhood) have softened, you may want to negotiate the renewal from scratch.
Don’t miss the chance to hear and talk with Dale Willerton – The Lease Coach – at the Canadian Pizza Summit on Monday, Oct.15, in Toronto.
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal or interested in a free leasing CD entitled Leasing Do’s & Don’ts for Pizzeria Tenants, e-mail, call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.