Lease vs Own for Coffee Shop

 

You may want to consider leasing rather than buying a location for your restaurant. You may be able to lease a building with less money up front. It will be easier to start your new restaurant, and there may be certain tax advantages to leasing. Additionally, if the time ever comes when you want to move, you would not have all the costs associated with selling the building. 

You should look at the following items in a commercial lease:

• • Length of lease. Many commercial leases go for five or ten years, rather than a single year. 
• • Rent rate and timing of rent increases 
• • Whether the rent includes insurance, property taxes, and maintenance costs (called a gross lease), or whether you will be charged for these items separately (called a net lease). 
• • The amount of the security deposit and conditions for its return 
• • The square footage of the space you are renting 
• • How improvements and modifications will be handled and who will pay for them. Pay specific attention to sign specifications. 
• • Who will maintain and repair the premises?
• • Whether there is an option to renew the lease or expand the space 
• • How the lease may be terminated, including notice requirements, and penalties for early termination

Commercial leases are different from residential leases. If you have rented an apartment, that does not mean you know what you are getting into. Commercial leases do not fall under most consumer protection laws. For example, there are no caps on security deposits or rules protecting a tenant’s privacy. Commercial leases usually are customized to the landlord’s needs, but they can be subject to more negotiation between the business owner and the landlord. Because there is no standard lease form, you must be sure to read each lease agreement you look at carefully. It probably would be wise to have your lawyer look at the lease as well.

• • Lease breaking. Unlike a residential lease where if you break the lease, you simply forfeit your security deposit, commercial leases are contracts, and if you break it, more than your security deposit may be at stake. Pay close attention to these terms in the lease agreement. 
• • Future growth. Think before you enter into a lease agreement, and make sure it fits your current and future business needs. Especially consider where you think your business will be in the future if you are entering into a long term lease agreement. Make sure the lease covers your ability to make the necessary modifications your building may need now or five years down the road. 
• • Signs and competition. Also, make sure you are able to put up a sign. If you lease in a large commercial complex, make sure the lease includes some competition safeguards for you. You do not want to open your coffee shop and see the landlord rent the space next door to another coffee shop two months later! 
• • Leasing broker. You may want to engage a leasing broker to help you locate business leases. A leasing broker works much the same way as a real estate broker: they will do a great deal of the legwork for a fee.