shop lease rent advice please

Discussion in 'Growing and Managing a Business' started by jinty, Dec 28, 2012.

  1. jinty

    jinty
    uix_expand uix_collapse
    New Member

    Joined:
    Dec 27, 2012
    Messages:
    9
    Likes Received:
    2
    Hi everyone

    I would like to ask some advice about lease and rent on a shop/cafe as i'm very confused about it all. Do you have to pay the lease upfront then pay monthly rent in addition to that or is it one or the other.

    I would like to take on a catering business with my husband, cafe / coffee shop or similar that I could use as a base for an outreaching catering business. I have a small amount of savings that I could use, and have found two or three premises local to me that could all work well. I'm very confused about the whole lease and rent requirements.

    TIA
     
  2. PS9

    PS9
    uix_expand uix_collapse
    Member

    Joined:
    Sep 23, 2012
    Messages:
    51
    Likes Received:
    46
    A lease is a term for rental with a contract. You'll sign a lease, for say 12 months, and you rent the place just like any other rental but you are required to stay in the place for the lease term. If not you'll pay a lease termination fee or if you leave on say, for example, month 10 you may be charged the extra 2 months to fulfill your lease term.

    Lease or rental you will be paying monthly, either one may require a deposit which is paid up front (if you have excellent credit they may be willing to waive the deposit) and is usually returned to you when you leave. The only way you'll get to pay something upfront and never pay monthly is if you purchase the building.

    If they say "Lease this building 12 months for $500." - The price is $500 per month, not total, and you are required by contract to stay 12 months. The total cost will be $500 x 12 = $6000 for one year.
     
    • Like Like x 2
  3. jinty

    jinty
    uix_expand uix_collapse
    New Member

    Joined:
    Dec 27, 2012
    Messages:
    9
    Likes Received:
    2
    thank you very much for your reply. :)
     
    #3 jinty, Dec 29, 2012
    Last edited: Dec 29, 2012
  4. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    Different properties have different lease contracts and different lease contracts have individual terms. Some leases will require that you pay a sum of money for the lease up-front and then pay a monthly rental charge. This up-front payment is sometimes known as "key money". Other property leases will not have a key money charge, they will normally require a deposit to be paid in advance and then charge a monthly rent.

    The best way to find out is to speak to estate agents in your area, ask them about the lease conditions on the properties they have. Also look round the areas that might be suited for your business and look out for signs on premises to lease or rent and phone the contacts. Ask them about the conditions and charges that apply to those leases.

    Before agreeing any lease you should also make sure you find out about any other charges that may apply, such as rates that must be paid to local authorities or service charges that must be paid to a management company.
     
    • Like Like x 1
  5. pete.mcal

    pete.mcal
    uix_expand uix_collapse
    Member

    Joined:
    Nov 11, 2012
    Messages:
    54
    Likes Received:
    33
    The market for business property rental is very poor right now (from the sellers side). This means that there are a lot of favorable opportunities for buyers.

    It used to be that standard practice was the buyer would pay the first 6 months rent up front. But not you see deals coming up where the rent is free for the first 3-6 months and all that is needed is a 1 month deposit.

    You should be looking to negotiate in today's market; you'll be surprised what you can get!
     
    • Like Like x 2
  6. David Miller

    David Miller
    uix_expand uix_collapse
    New Member

    Joined:
    Dec 4, 2012
    Messages:
    2
    Likes Received:
    1
    Pete is right. Negotiating is a very fruitful practice in today's business environment.
     
    • Like Like x 1
  7. jinty

    jinty
    uix_expand uix_collapse
    New Member

    Joined:
    Dec 27, 2012
    Messages:
    9
    Likes Received:
    2
    thank you all so much for your advice its a great help.
    Some of the places I have seen are advertised for example as £50,000 leasehold then state a rent. Does that mean you have to buy the business and pay a rent too. or is it one or the other?
     
  8. ArcSine

    ArcSine
    uix_expand uix_collapse
    Member

    Joined:
    Jun 2, 2010
    Messages:
    233
    Likes Received:
    187
    Jinty, it's helpful to think of the business and the property / premises as two separate issues. Frequently a business (esp. a retail operation) and the premises from which it operates will be owned by two different parties. The business owner (cafe owner, say) simply rents the space from the owner of the building.

    If you purchase such a business, you're buying the business itself---the equipment, computers, existing customer goodwill, etc. As a completely separate issue, you'd need to either take over the existing lease (become the tenant, making lease payments) in order to continue operating the business from the same location, or negotiate with the landlord a new lease, or find an alternative location from which to operate the business.

    It's possible for the business owner and the property owner to be the same party. In such case, though, it might still be advantageous for you to buy only the operating business, letting the seller keep the building. Apart from your purchase of the business you'd negotiate a lease with the seller allowing you to operate your newly-purchased business from the same location, in exchange for monthly lease payments. Such an arrangement might be financially more feasible for you than trying to buy both the business and the property as well.
     
    • Like Like x 2
  9. 2misi.com

    2misi.com
    uix_expand uix_collapse
    Member

    Joined:
    Dec 18, 2012
    Messages:
    124
    Likes Received:
    9
    I can recommend article which can serve as good reference for you to operate restaruant business.

    Buying a Restaurant

    If you've spent time looking at restaurant for sale listings, you probably realize that there are more restaurants listed than any other type of business. The question is whether this a good or bad thing? There's really two ways to approach it: the optimist will say that there's a great market when the time comes to sell; while the pessimist will want to know why all of these people are selling their business? Actually, they're both right.

    On the positive side, good restaurants, just like any other solid business, will sell quickly; especially in the current market with so many people looking to buy a restaurant. On the other hand, the failure rate amongst restaurants is so staggering that many people simply want to get rid of them before they become another statistic. With this in mind, there are a number of critical issues you need to be aware of so that you're certain when you buy a restaurant, it will be successful with you as the owner
    The Lease

    Unless a restaurant has a long established, storied history, most often the location will play a significant role in its success. Traffic can be driven by its proximity to office workers, a movie theatre, a mall, or a thoroughfare. Whatever the reason one can see that location is crucial and this is directly related to the lease in place.

    More and more landlords are being cautious or downright difficult when it comes to assigning a lease to a new restaurant business buyer. Some flatly refuse an assignment unless the buyer has prior experience in this field. Or, they may require the former owner to remain on the lease (very difficult to convince them to do so), or they may insist that the buyer puts up a significant advance of the rent into escrow.

    With these potential challenges, it is recommended that you address the lease portion of the deal as soon as possible with the seller. It is imperative that any purchase contract contains language (a condition/contingency) whereby the deal is contingent upon you the buyer getting the lease assigned or a new lease in place that is satisfactory to you. Once you have a deal in place, you'll want to arrange to meet with the landlord.

    The seller may require you to complete your financial review first which is understandable however; your best strategy is to convey to the seller that if the landlord will not assign or enter a new lease, the sooner everyone knows, the better it will be. Plus, the seller will surely want to understand the landlord's position for any future prospective buyers. Insofar as terms and conditions, obviously you'll want a long term lease including options. Anything less than five years is not recommended.

    Valuating a Restaurant Business for Sale

    There are two main methods for valuing a restaurant: 'Asset Based' or Seller's Discretionary Cash Flow' (Owner's Benefit) multiple formula. The Asset Based method is appropriate for an unprofitable or closed location where you are simply purchasing the equipment in place either from the owner, or maybe even the landlord. Get a reasonable valuation done on the equipment and made an offer.

    Dealing with Cash Sales Unreported Income

    While the industry has got better, there is still a tremendous amount of unreported income in the restaurant industry. The problem of course is that sellers expect to get paid for their total profit, yet often times they cannot even prove it. My attitude has always been: if they cannot prove it; you cannot pay for it. Furthermore; they can't expect to have it both ways: if they've been cheating the government for years and benefiting tax wise, they cannot reap the benefits a second time in the sales price of the business.

    Costs

    Food and labor costs are the key considerations in a restaurant business. Costs will vary based upon the type of restaurant whether full service or fast food.

    Other Issues

    1. Unless you're an expert, take the time to have the equipment evaluated by a professional.
    2. Health department regulations and compliance will form a key part of your investigation. Check public records for any prior infractions. You may also want to check the online archives of the local paper since they'll usually report on these health issues. As you know, people want to eat in a clean environment. If there were any health issues, it is almost guaranteed that the public was made aware of them and there's no faster way to put yourself out of business then a published report in a local paper that your establishment is bug infested, or in default of health or safety regulations.

    So there you have it. Buying a restaurant can be very exciting. Lots of people have built tremendous restaurant businesses. However; there is a lot to consider. Make sure that you educate yourself properly, especially if buying a restaurant is new to you. After all, you want to buy and build a successful operation and not allow yourself to become another statistic.
     
  10. Ted

    Ted
    uix_expand uix_collapse
    Member

    Joined:
    Jan 3, 2013
    Messages:
    182
    Likes Received:
    164
    Jinty,

    If you are planning on starting a catering business, then here is some advice that may help.

    Starting a business from scratch is more difficult than you probably realize. I am not saying this to demotivate you at all. I am speaking from experience.

    The one thing that will plague you as a startup is going to be having a lot of overhead to deal with while you are trying to get your business going.

    Getting the business going takes way longer than you imagine it will. It takes a while to get customers and build up your customer base to the point where the business can survive on it.

    So, my advice would be for you to start your catering business from home first and try to build up some clientele. Start with small jobs that you can accomplish without a commercial kitchen.

    Get feedback from people and work out as many of the kinks as you can before you go rent a place. Once you have sufficient demand for your business, then go ahead and get that space.
     
  11. sigma

    sigma
    uix_expand uix_collapse
    Active Member

    Joined:
    Aug 31, 2009
    Messages:
    1,944
    Likes Received:
    283
    well, the leave and rent is actually based on the agreement between the renter and owner. You need to talk to the owner and write them down in black and white. If you are not familiar with that, suggest to get an property agent or lawyer for the advice
     
  12. jinty

    jinty
    uix_expand uix_collapse
    New Member

    Joined:
    Dec 27, 2012
    Messages:
    9
    Likes Received:
    2
    thank you very much That explains things alot more clearly, we're still looking at alot of options as we think that keeping the costs to a minimum initially would be the best thing to do.
     
    • Like Like x 1

Share This Page