Top Tips For a Landlord Leasing to a New Restaurant Tenant

Every month, an average of over 90 food service licenses are issued in every state. That’s over 4,500 new restaurants going into business every month across this country.

Do you have a restaurant space that you would like to fill with a quality tenant? Certainly there is no lack of tenants out there that would be interested in your site, so how do you go about finding the right tenant? This information was created specifically for Landlords who want to find the right tenant for their property.

When a prospective tenant is looking for a restaurant space, you as the prospective Landlord should know what they’re looking for, and in this order its; a lease they can afford, a site that fits their concept design wise, visible signage space, and parking. Everything beyond this is secondary.

Yes, the quality of the location is of vital importance, but the affordability of the site is paramount. Armed with this information, you should be able to present a sales package to your prospective tenant in terms that they can understand. If you can make the location financially easy to get into, that will give your prospective tenant the extra cash to commit to the other things related to getting the new restaurant off the ground.

In order to protect yourself from an unqualified tenant, there are many questions that you will want answers to. Set your expectations with the prospective tenant upon your first initial meeting. By doing this and listening closely to the answers, you can avoid a lot of potential pain for both of you.

Six factors that can help you select the right tenant:

#1. Create an interview checklist. You will want to cover a lot of ground with your new prospective tenant, and you’ll want to ask relevant questions. Depending on your unique situation, you may have legal restrictions placed on your ability to ask questions, so you will want to review your interview game plan with your legal advisor. This information is meant to be informative only and is not to be considered legal or accounting advice.

#2. Credit worthiness. Let the prospective tenant know that you care about their prompt payment history, and that you will expect them to personally be on the lease. Few restaurateurs will want to personally sign a lease, and it will be important to deal with this matter right up front. If the prospective tenant knows that their personal creditworthiness is of importance to you, you’ll cut right to the chase every time. Are you as a Landlord willing to lease to a company with little or no operating history? Perhaps if you have a space that has been vacant for a while you’d consider it, but you will want a significant amount of financial security up front.

#3. Background check. There’s an old saying that goes something like this, “What has happened in the past is indicative of what may happen in the future”. Your prospective tenant may have a background that may not be spotless. Only you can be the judge of what you are willing to tolerate-but don’t forget that old saying. Background checks are inexpensive and can provide a lot of valuable information into the business dealings of your prospective tenant.

#4. Feasibility study. Has your prospective tenant had a feasibility study done or is one planned? This study will evaluate the chances of success of the new restaurant venture, by examining the location and facilities offered (such as: walk in coolers, delivery doors, restroom facilities, and power availability), concept, competition, niche market, financial opportunity, and the overall viability of the project. This study will give you and your tenant the security in knowing that the new restaurant may be the right concept in the right area. If the prospective tenant has not considered a study, and you like what you see from the Landlord perspective so far, you may wish to split the cost of a feasibility study with the tenant, or just pay for it yourself and bill the prospective tenant back over time. The findings are hard-hitting, and factors that never may have been contemplated may be brought to light. Most importantly, the Feasibility Study will help identify and confirm the market niche that your prospective tenant is seeking to fill. This is of vital importance both to you and to your prospective tenant.

#5. Business plan. A restaurant business plan is focused on the menu, and everything revolves around it, including revenues, expenses, equipment, payroll projections and all of the other numbers and concepts that will go into a business plan. It is not realistic to think that your prospective tenant has a business plan yet, because the location issue is still unresolved, as it the seating count, and so many other variables. Want to surprise a quality prospective tenant with something great? Offer them a long-term lease that includes a business plan that you are willing to pay for (and of course, include in the lease terms). This will set you apart as a caring Landlord who wants the very best for the tenant. Don’t you think this would be just the thing to close the deal? Think about how few Landlords are including a business plan with an executed lease, and you could end up being the Landlord of choice! One of the nice hidden factors in this equation is that as you have commissioned the business plan as the Landlord; don’t you now have the ability to give your input into the concept as a whole? Now, you are not only the Landlord, you have become somewhat of an informal business partner, allowing you a good view of what’s happening in your space without being surprised.

#6. Business team. A restaurant management team not only consists of the owner(s) and the managers, it’s those outside the day-to-day operation that provide advice, direction and counsel that play very key roles in the success of the new restaurant. Legal, accounting, and restaurant consultant all play unique roles and contribute to the profitability of the operation. Regardless of the experience of the prospective tenant, this team should be in place in the very early stages, and by the time this person is ready to start looking for space, it should be a red flag to you as the Landlord if this team is not together yet.

Norman Vincent Peale once said, “We tend to get what we expect.” Let’s market to and then expect a quality tenant and put ourselves in a positive conducive to that goal by using these steps above. Stay focused on the goal of a long-term relationship with a profitable tenant. This will help ensure that the rent gets paid on a regular basis.