Acquiring a new restaurant? - Why it’s important to get a survey done before taking on new restaurant premises
In the third of a series of articles on the how to approach negotiating terms for a restaurant lease, our senior Partner Peter Ruchniewicz discusses why surveys can potentially highlight future trading difficulties.
In our experience at CBG Law – particularly in advising new entrants to the restaurant sector – acquiring new restaurant premises in a very competitive market can all too easily result in budgets being exceeded and restaurants being established with higher than prudent initial capital outlay and recurring fixed property costs. Worse still, nasty surprises can sometimes await a tenant of commercial property down the line which can have a sudden and material impact on the viability of the business (which may otherwise be trading profitably).
Typically nowadays restaurants are operated from premises within a building or shopping centre through leases lasting 10 years or more at market rents. Whether a new lease of vacant premises or assignment of an existing operating restaurant, the tenant can typically expect a lease obligation to pay its share of the cost of structural maintenance and other building services costs. If substantial works to the building are subsequently required (whether or not directly affecting the restaurant premises) the process of carrying them out can be disruptive to trade and costly.
Even if the survey identifies no immediate issues (which the landlord could be asked to resolve at the outset), it may be possible to negotiate a cap of such costs at least in the early years of operation to allow for trading to become established and for the inclusion of tenant safeguards as to the method and timing of works, scaffolding treatment etc.
Ideally at least an outline specification of fitting out proposals should be provided to the surveyor as this may help identify issues for resolution at the outset rather than potentially suffer subsequent delay resolving them at the tenant’s cost during the fit out programme (with a corresponding effective reduction in the value of any rent free period).
Several years ago a restaurant client of CBG Law wanted to acquire an already operating restaurant in a building where the upper parts were, CBG Law discovered, about to be redeveloped as new flats. Having established from CBG Law’s and surveyor’s enquiries that this would require scaffolding which would obscure the restaurant frontage, the landlord sought to reassure that the scaffolding would be ‘up and down within 6 months’ so offered a rent free period of 6 months to compensate for any adverse effect on trade.
We were sceptical and recommended the client should seek a further concession that if the scaffolding was still in situ upon the expiry of the 6 months rent free period a reduced rent – perhaps 50% - would only be payable until the scaffolding was eventually taken down. Ultimately because of strong competition for the unit the further concession could not be secured and unfortunately the scaffolding remained in situ for almost 2 years during which there was a consequential depressive effect on trade!
The object lesson for a new entrant to the restaurant sector is to weigh up strong desire for particular premises against the risks to your future trading. Our advice can help you to make that important decision.
Taking good advice at an early stage of your lease negotiation is key. If you are considering opening a new restaurant CBG Law can assist you at all stages of the property acquisition process. To arrange a consultation to discuss your requirements please contact Peter Ruchniewicz on 020 7462 6020 or email pwr@cbglaw.co.uk