The Ultimate Guide on How to Lease a Restaurant Space

Restaurant business is one of the most profitable businesses. There are lots of people who are entering into the restaurant industry. But most of the people fail due to a lack of sufficient planning. 

If you are obsessed with opening a restaurant, then you can use different strategies. You may start in your own place, or you can lease a restaurant space. Leasing a space is very common in the business industry. 

There are some legal strategies that should be followed while renting any space. In this article we will cover how to lease a restaurant space. Read the article and get ready to start your restaurant by leasing a space.

Types of Restaurant Lease

Leasing a restaurant space is widely used in the food industry. You will find millions of restaurants that have been established by renting a space. However, leasing a space means the restaurant owner rents a commercial space or building to operate their restaurant through an agreement. 

It is a contractual agreement where different terms are used. Leasing a space for restaurants includes agreements on lease duration, rent amount, maintenance, permission, and others.

What are the three main types of leases? You will find different types of restaurant leases. But there are three main types of leases while finding a space for restaurants. Each type has different operational costs and other policies. 

1. Gross Leases

Gross leases are one of the most common leases. In the gross leases, the tenant pays a certain amount in fees, and the landowner pays all the operating costs. It includes maintenance, insurance, utilities, property taxes, etc. 

However, a gross lease is very simple and flexible for the tenant. These types of leases are commonly used for office spaces. If you are planning for a  shop, then a gross lease is not suitable for you. Most of the time, gross lease is often called a full service lease.  

2. Percentage Leases

A percentage lease is very popular and widely used in the business industry. It is a type of lease where the tenant pays a fixed amount of fees and a percentage of sales profits as a part of the agreement. 

Simply, the landowner takes a percentage of revenue from the tenant. However, percentage leases are suitable for commercial businesses such as shopping malls or retail businesses. 

This type of lease can be very suitable for the landlord if the business is successful. They earn a handsome amount of profit from percentage leases, as they take both the fixed amount of rent and a percentage of profit on sales.

3. Net Leases

A net lease is common and very useful for restaurants and other commercial spaces. In these types of leases, the tenant pays the rent along with the property expenses. However, the tenant pays some or most of the expense, and it depends on the lease agreements. 

As we know, in property leases, most of the expenses are paid by the landowner, but in net leases, the case is different. The expense includes utilities, insurance, maintenance, property taxes, and others. 

What is the best type of lease for a restaurant? Net Lease. So, if you are planning to start a restaurant business, then a net lease is perfect for you. Most of the restaurant leases are net leases.

How to Lease a Restaurant Space

In the previous section, we learned about the different types of leases. So, I hope you understand what types of leases are suitable for restaurants. But this is not the ending; you must know how to lease a restaurant space. 

Without knowing the process of renting a restaurant space, you may face different types of problems. So, let's get into details and know how to rent restaurant space. 

1. Define Your Needs

The most important task of leasing a restaurant space is defining your concept and assessing your needs. First you have to define your restaurant concept. When you have a clear concept, you can easily assess your needs. 

Moreover, the basic needs of your restaurant depend on the type of restaurant. If you are planning for a casual dinner restaurant, then the basic needs will be different. 

On the other hand, if you start a fast food restaurant, then the needs will be different. Here, we will discuss some important things that should be considered while renting a space for restaurants.

• Location

Location plays a crucial role in restaurant success. When you are renting a space for a restaurant, you must choose a suitable location. You must do the research on your competitors, examining restaurant pros and cons and customer food habits. 

• Size

After selecting the location, you must focus on the size of the space that you want to rent. As we know, restaurants need different types of spaces for different purposes. It includes commercial kitchen space, dining space, washing space, inventory space, etc. 

So, you must define the square footage of your restaurants that you are planning. But, remember, a higher square footage costs higher rent. While assessing your needs, you have to explain the size of the space you need. 

• Rent

Rent fees are important. Before you start to lease a space for a restaurant, you must focus on the rent fees. If you find that the location you select has a higher rent, then you may change the location. You can find some other popular places and compare the renting fees. And, if you find this place is suitable, then you can move forward.

• Parking

A good parking space is always the bonus point for any restaurant. Suppose you have a good restaurant, but there are no suitable parking spaces. It will create a negative impact on your food business. If the customer is not able to park their vehicle, they may never visit your restaurant. So, you must ensure the space has a good parking area.

• Ventilation

Good ventilation is a major part of restaurants. It ensures a healthy environment for both employees and customers. Moreover, good ventilation is also important for fire safety. So, while choosing space for a restaurant, make sure the space has a good ventilation system. 

• Entrance and Exits

A restaurant becomes famous in many different ways. It includes good food, a nice environment, healthy customer service, and a well-maintained entrance and exit system. So, as a restaurant owner, you must ensure your restaurant has a good entrance and exit system. 

And, most importantly, if the space has different entrances and exits for the employees and customers, that is best practice. Moreover, the restaurant should have an emergency entrance and exit system. While leasing space for a restaurant, focus on those factors.

2. Make a Budget

To lease a restaurant space, you have to create a budget. The cost of the rent depends on several factors. It includes location, size of the space, types of lease, etc. 

While renting space, you have to make sure the overall lease cost is not above 10% of your sales. If you can ensure the percentage, only then can you be profitable. 

Moreover, you may need to modify the interior and exterior of the space. In that case, you also need to spend a handsome amount of money. So, you have to include all the costs in your restaurant budget plan. 

3. Choose a Location

The first two steps are where you have to define your needs and create a budget. Now, it is time for real-time action. At that point you have to find a location where you want to start your business. 

First, you may list some locations where you want to start. Then, you have to look for the place's availability. In that case, you can get help from a local agent or some advertisement. 

Choosing a location with high traffic is always considered. Along with these, a location that can easily be noticed by the foot traffic and easy access to everyone. Choose the location wisely, and this is one of the important parts of your business. 

In commercial business, the local agent is also known as a broker. The broker gets a certain amount of fees, and they explain the lease agreement, terms, and conditions to the tenant. These are the most effective ways to find a suitable location for leasing a restaurant space.

4. Visit and Asses Properties

After finalizing the location and space, it's time to visit physically. When you visit the place physically, then you will get to see the view of the space. Moreover, you can visit  with other important people related to your restaurant. 

They can be your business partner, restaurant manager, or chef; they can notice the place clearly. A physical visit is very crucial. It helps to get to know the real conditions of the leasing space. 

When you visit, you can see all the details, such as the walls, the layout of the building, the size, the ceiling, etc. However, you need to keep your eyes open while visiting. And, importantly, you should take some time and discuss with the others before signing the agreements.

5. Negotiate the Lease

You can not ignore the term negotiate while leasing space for restaurants. However, it is considered one of the important parts of renting space. So, you need to know the terms that should focus on negotiations. 

When you can do the negotiation properly, your business gets an extra bonus. But if you fail to negotiate, you may see a big fall in your business. Here, we will discuss the negotiated lease terms and their details.

• Base Rent

First, you have to negotiate the base rent. Try as much as you can to lower the base rate for the first one or two years. Moreover, you can also ask for rent abatement for the first two to six months. 

• Lease Term and Renewal

Now, you need to negotiate the lease term and renewals. You have to take the lease agreements on average 5 to 10 years. And you can offer to renew the agreements every five years. While making agreements, make sure it goes in your favor.

• Use Clause

Make sure your restaurant business is flexible enough. You can use different strategies, such as opening a catering business along with the restaurants. Moreover, you can get the permissions for any changes. So, negotiate so that there is no limit for business activity. 

• Maintenance and Repair

Maintenance and repair are very important for leasing a space. It cost a high amount of money. So, make a clear deal on maintenance and repair on who handles the terms. 

Different types of maintenance are needed for restaurants, such as HVAC, plumbing, roofing, etc. Clarify who is going to handle these costs. However, as you are going to lease the space, try to make sure the landowner handles the maintenance and repair costs.

• Exiting the Lease

As we know, business is tricky, especially the restaurant business. You may face different types of problems, and at any time you have to take instant decisions for closing the business. In that case, you have to negotiate exiting the lease. It will help you from a big financial loss.

6. Conduct Due Diligence

Conducting due diligence is essential when you are looking for an answer on how to lease a space for a restaurant. It is a process where the space is inspected. This inspection ensures that the space meets all your requirements. 

In most cases, due diligence is done by hiring the professionals. They inspect the overall space and the structure. Moreover, in the process of inspection, fire safety plans and other external departments are also checked to ensure they are working smoothly. 

When the inspection is done, the tenant goes back to negotiate the process. If any repairs or other things are needed, you can negotiate the terms with the landowners.

7. Finalize the Lease and Sign the Lease

Now, it is time to finalize the lease. If all the terms and conditions are fulfilled, you can finalize the lease agreements. It is time to move forward and sign the lease paper. 

You can sign the lease agreements with full confidence and can start your restaurant business. Remember, while finalizing the lease, all the terms and conditions must be rechecked. Make sure there is no hidden charge or any conditions that are not clear.

8. Open Your Restaurant

Finally, the time is here. You can now start your restaurant. First of all, you have to design your restaurant's interior and exterior according to your needs. Then, you have to set all the equipment. 

Make sure you brought the right equipment. It will ensure your working efficiency. Now, you must hire and train your staff. You should be very careful while hiring the restaurant staff. 

Moreover, you can arrange tanning sessions to guide and train your staff as per your requirements. When all the terms are set, now you can start your restaurant.

How Much Does It Cost to Lease a Restaurant

When you are looking, how to find restaurant space for lease, you must know the costs. But it is hard to estimate the exact cost of renting a space. The actual cost varies a lot. It depends on several factors. 

But, on average, the cost of renting a space for restaurants is about $40,000 to $350,000. And these estimated costs are for the long-term lease. 

Moreover, you can get a space for rent with a lesser amount, depending on agreements. Here, we will discuss some factors that influence the average costs.

Factors that influence the cost: 

1. Location

Location plays a crucial role in cost while renting space for a restaurant. A location with higher traffic or in the middle of the famous city generally charges higher rent. 

On the other hand, in a location with lower density and a rural area, the rent is comparatively lower. You can get an idea by searching for restaurant space for lease near me. 

It will help you to get a primary idea of renting a space. Before you step into the restaurant business, you must research the location.

2. Lease Types

The average cost of renting a space also depends on types of leases. There are many different types of leases, and they offer different policies. So, if you want to calculate the rent, you must know the types of rents. Remember, selecting the rent types can make a big difference in costs. 

3. Size of the Space

Generally, a larger space needs higher costs. So, if you plan to open a restaurant with a larger space,. The average cost will be higher. It depends on the square footage of the space. However, if you want to estimate the cost of leasing a space for a restaurant, you must focus on the size of the space.

4. Feature of the Building

Building features also cause the cost difference. Suppose a building with a good parking area and a good ventilation system,generally the rent will be high. So, you should consider the features of the building while renting. 

Here is a Graph for Average Monthly Lease Cost by Location

Final Thought 

Starting a restaurant business is a great initiative. Proper implementation of the right technology and strategy can provide high success. Leasing the right space is one of the major tasks for a restaurant. 

It can ensure your investment turns into profits. You may face many difficulties while renting space for a restaurant. But, with the proper information on how to lease a restaurant space, it can help. 

Moreover, you may get help from a broker or attorney. In that case, you have to provide some amount of money. But they will help in different ways while leasing space