Rent typically represents 6 to 10 percent of revenue for a healthy restaurant. Locking in unfavorable lease terms can saddle your business with an unsustainable burden for years. Strategic negotiation before signing is essential to long-term viability.
Understanding Lease Structures
Triple net (NNN), modified gross, and percentage leases each distribute costs differently between tenant and landlord. Understanding which structure best suits your revenue profile and risk tolerance is the foundation of any negotiation.
Negotiating Tenant Improvement Allowances
Landlords often provide TI allowances to offset build-out costs. Negotiate this aggressively, as restaurant build-outs are significantly more expensive than standard commercial spaces due to plumbing, ventilation, and electrical requirements.
Rent Abatement and Escalation Caps
Request rent-free months during the build-out period when you have no revenue. Also negotiate annual rent escalation caps, typically 2 to 3 percent, to prevent landlords from imposing aggressive increases in future years.
Exit Clauses and Flexibility
Include assignment and subletting rights in your lease. If the business struggles, the ability to assign the lease to another operator provides an exit strategy that avoids the devastating costs of breaking a long-term commercial lease.