Renting out part of my business space?

[bakery_biz]

Hello,

I am interested in gaining insight for my current situation.

I am a bakery owner, and have a section of my bakery that is used to sell ices. It does not bring in much business and the space isn't utilized that well.

Someone who used to own a frozen yogurt type place is interested in setting up shop right in our space. I'm currently struggling to make ends meet so would like to take this opportunity as extra income and to also bring new people in to my bakery. They used to have another location in a much more expensive spot, and ended up closing. They have great reviews online of their product.

I am wondering how much I should charge them for the spot? My rent is about 3k/month, utilities are an average of $2,500/month, and they would be under part of my insurance policy which is a little more than 6k a year. Should I charge just a monthly rent, or ask for a piece of the profits? Not really sure how to approach it, and I would greatly appreciate any advice!

[Business Attorney]

Personally, I'd be inclined to a flat rent. In shopping centers it is fairly common for lessors of retail space to charge a base rent plus a percentage of sales, but they have a number of tenants to spread the risk. Usually the base rent is somewhat less than a flat rent would be, but they expect that the percentage rent plus the base rent will, on the average, be more than a flat rent would have been. With only one tenant. I think you are better figuring a fair rent and sticking with it.

Note that when I was talking about the percentage rent I said a percentage of sales, not a percentage of profits. Profits are too hard to measure and too easy to manipulate. Even if the tenant is being 100% transparent and honest, you don't want to worry about whether or not he's paying too much for supplies or has an extra person on the payroll.

One other thing. Make sure that your insurance agent knows what you are doing. While you say that they will be under part of your insurance policy, in some cases arrangements like the one you are suggesting may not only not be covered but may even void your policy.

[firstchoicecar]

Well I think that is great for you, many opportunity will come in your bakery and some of the customers of the frozen yogurt can also be you customer.

[patrick0001]

the price is depend on the space occupied, if they take half space it is reasonable for you to charge 50% rental, insurance and utility fee. Flat rent is better, when goes to share profit thing become complicated, because you need to take part on costing, profit and loss. End up you are likely a business partner rather than rental.

[bakery_biz]

Thanks for the advice all, appreciate it.