Lease negotiation is essential when starting a coffee shop

So you’re opening a coffee shop. Before you sign any lease, be sure to read it. You’ll be surprised how ‘repeatable’ most commercial leases are. Try to do everything you can to get what you want in your lease. That is, things that will benefit you and your business first. Most lease agreements tend to benefit the owner, not the tenant. However, if you feel you cannot negotiate your own lease, consider consulting an experienced commercial real estate attorney or commercial real estate agent.

Now, just because you ask for something to be in your lease doesn’t mean you’ll get it. However, it doesn’t hurt to ask; you may be surprised. These past few years and for years to come, vacant store fronts and other spaces aren’t exactly being filled, so the owners are willing to give you incentives to sign you up. On the other hand, be prepared to give something on the back end, like a few extra months or a rent increase at a certain time. The following items are always negotiable and many are NOT in most leases unless specifically requested:

rent amount

Yes, this is always the first negotiable point when negotiating a space to open a coffee shop. A landlord calculates the amount of rent based on the square footage of the space. Be careful with the images that the landlord uses to calculate the rent. A common tool for them is to include common areas like the floor area on the outside of the door or an elevator if you are in an office type building. Try getting this out of your lease. They generally base the rent on an annual fee like $12.00 per square foot. (1,000 square feet would be $12 x 12 months = $12,000 per year, or $1,000 per month.)

Property Description

The lease must clearly describe the leased property. For example, you should clarify whether bathrooms, common areas, kitchen area, parking lot, etc., are included in the lease.

signaling

Make sure the lease does not prohibit posting signs that are visible from the street or certain types of signs on the building itself. If you can’t put up a sign big enough for passing cars to see, then this spot may not be a prime spot and you may want to just drive by.

clause of use

Make sure you can open and operate a coffee shop there. On the other hand, your landlord should have already qualified your type of business before coming to the lease negotiation. If you plan to sell coffee beans that you’re roasting on the premises, make sure you can actually roast them there. If you plan to rent a space on the first floor and there are other units or apartments above you, be sure to check with the city about using open flames or proper ventilation for your toaster. You may need to run the vent through the upper units and box it in instead of on the outside of the building.

Exclusives or Cancellations

This means that no other tenants in the plaza now, or future tenants (as long as you are a tenant) will be able to sell coffee beans, brewed coffee, tea, smoothies, and anything else you make a living from, as long as it’s It’s in your lease.

Free rent (rent reduction)

Try to get as many months of free rent as possible. However, you usually have to ask for it. All the owner can say is ‘no’. So you have to decide if you can do without. That depends on how good the location is and what you’ve done to make it work for your coffee shop. You must also request that the free rent begin AFTER construction on your unit has been completed and you are officially occupying it or when you actually open for business.

personal guarantee

In most cases, you won’t be able to get around a personal guarantee, especially since you’ve just opened a coffee shop. This means that if you fall behind on your rent or leave before the lease is complete, it may be held against you personally, even if the lease is in the company’s name. I advise putting a personal guarantee in the first year only if possible, maybe 2. This can be written into the lease that after 1-2 years, your corporation is responsible from then on, not you anymore. This will give you time to show that you are responsible.

Lease Term

The standard can be from 1 to 5 years. I always ask for 3 years for a new business, with four 5-year renewal options (discussed below). The reason I ask for 3 years is that it is the point of maturity. You need to know if your business is profitable enough to stay longer once you hit the 3-year mark. After starting a coffee shop business, it should become profitable in the third year.

renewal options

The standard for asking is ONE five-year option. Most leases don’t even offer automatic renewal options. You must apply for at least a five-year option to renew. If this placement is prime (which it should be), you should apply for at least 4 five-year options. This gives you the option to renew the lease for five years, four consecutive times, giving you a term of at least 25 years. That can mean a permanent location for your business!

improvements

This should be a ‘give me’ but make sure it explains how you are redecorating the space by opening a coffee shop. This is more than hanging pictures; I’m talking about putting up walls, tearing them down, adding a drive-through window, etc. or anything else important. Make sure whoever is responsible for the payment is listed as well so there are no questions later. You may also be responsible for returning the unit to its original condition at the end of your lease. Be careful with this!

Option to sublet premises

You should be able to do this, as most leases allow it, but make sure it’s on yours in case you want to vacate early and have someone want to sublet you for the remainder of the lease term.

Assignment/Lease Transfer Option/Assumption

This is more difficult to achieve. A landlord wants as much time as possible on the lease from a tenant, so he would rather re-lease his space to a new person than simply transfer it or let someone else take it over. However, this is useful if he must sell his business. One of the main components of commercial value is the remaining time on the lease. It can help or hinder a business, but in most cases, it’s an asset, so a lease assumption clause is essential.

Summary of Landlord Responsibilities

Most leases already state this, but be sure to get details about what you are responsible for and what your landlord is responsible for. The most common type of commercial lease is triple net (NNN). That means that you are not only responsible for paying property taxes, but you are also responsible for all repairs to equipment such as air conditioning units, heaters, water heaters, etc. Not bad if your building is new or only a few years old. However, if you are going to lease an old building with marginal or old equipment, you need to come to an agreement on who is responsible for what, when and where. If you’re just starting a coffee shop business, this can add to your initial reserve capital, so be careful.

rent increase

This really should be minimal. Most landlords calculate the annual rent increase based on a certain percentage of some magic number like the consumer price index. Try to negotiate a limit on the percentage increase with the landlord to avoid unmanageable rental costs later in the lease term. 2-4% is usually a standard to ask for and is a reasonable amount of annual increase in my opinion.

Compliance with the Americans with Disabilities Act

The lease must determine who is responsible for making necessary modifications to the property, such as handicap accessible bathrooms or wheelchair ramps, and who must pay for these changes. Most commercial spaces already comply with this law. However, if the space has not been leased to a new tenant in many years, or if the previous tenant was not retail oriented, the space may need to be modified.

These items are some great terms to include in your leases when starting a coffee shop business, as they will help you tremendously throughout the term of your lease. If your prospective landlord won’t budget for any of these items, then don’t be afraid to walk. There is always another possibility around the corner.