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Financing

How to read a lease

So you’ve found a great location at a good price. You’ve still got one hump to get over: signing the lease.

“Every day, I see tenants signing leases they shouldn’t,” says Kudan. “They can never get out of them. When you have a poor lease, your chances of failure are greater, and it’s more difficult to sell them.”

The key to a good lease is to remember that many points are negotiable. If you know what’s important to you, don’t be afraid to barter it for a clause that’s important to the landlord. And make sure to get it in writing, for those worst-case scenarios. Here are some key clauses to look for—or look out for—in a restaurant lease:

Free Rent
Nothing’s really free, of course. But if you’re coughing up cash to build out a space, many landlords will discount or zero out your first three or four months’ rent.

Sublet and Assignment Rights
You don’t plan to fail. But in case you do, make sure you can sub-lease your space or sell your lease to another aspiring restaurant—with or without the landlord’s consent.

Early Termination
You’re signing a five-year lease. But if you break it early, you’ll only owe rent for 12 extra months—or until someone else leases the space.

Subordination, Non-Disturbance and Attornment
If lenders foreclose on your shopping center—an all-too-common occurrence these days—an SNDA clause makes sure they can’t raise your rent or kick you out.

Common Area Maintenance
Look for areas you can maintain on your own. If you can clean the parking lot for less than you’re paying the landlord, make it a “tenant responsibility” and reduce the fee.

Co-Tenancy
Reduces or cancels your rent if an anchor tenant, like a Nordstrom’s, pulls out.

No-Build Area
Without setting some boundaries, your highly visible location could become invisible if the developer decides, later on, to put up a lifestyle wing in front of you.

Mechanical, Electrical and Plumbing
The landlord should pay for MEP improvements that will carry over to future tenants. Says New York consultant Mario Ponce, “If you’re going to build something in a restaurant, and you can’t take it with you, you’ve got to get the landlord to buy in.”

Exclusives
If you’re selling Italian food, make sure a pizzeria can’t open down the hall. On the flip side, make sure existing tenants don’t have exclusives that might restrict your menu, like a Starbucks that prevents you from selling coffee.

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