Wow, has it been a crazy few months! We started the process of looking for locations a while ago, had found a great location, but what took some time was the due diligence process to make sure we’d actually be allowed to follow our plans through on the space before we sign the lease. Now that pre-lease due diligence has been cleared through, we can finally move forward into the process of drafting and negotiating the lease!
Drafting the Coffee Shop Lease
Writing and negotiating can take a few months to create a detailed, legally binding, robust document. Taking time to create a strong Letter of Intent and Lease Proposal were a huge help as spelled out the main negotiation points for our lease. Doing these non-legally binding documents beforehand made the drafting and negotiating process go faster, smoother and cheaper for all involved. And working with our brokers Adam and Melissa at Broad Street Realty did help make things much easier!
Note there is no “standard lease,” so it will be totally customizable to your needs. Your lease will include everything you wanted spelled out in the LOI/Proposal, as well as what your Landlord wants and requires. Everything is up for negotiation and there’s a lot to include such as:
- Rent- breaking down base rent and NNN, including security deposit
- Tenant Improvement Allowance- how much, how it’s paid and for what
- Lease term- including commencement, execution, rent start, renewal, and lease expiration dates
- Renewal/extension options- to renew the lease with set rates for when the time comes
- Free rent/abatement- stating the length of time you have rent free (at least one to three months)
- Condition received- how the landlord will deliver the space
- Hours of operation- days, times, requirements for vacations/major holidays, hours of access
- Exclusive use- not having anyone else in the area that does what you do; have it as broad as possible
- Maintenance, repairs, utilities and trash- who is responsible for what
- Signage- restrictions and responsibilities
- Relocation- if the landlord can move you to another unit (best to be taken out)
- Right of first refusal- to take over space next to you if you want it
- Rules & regulations- of the space, and if can your landlord change these with or without approval
- Smells/sounds of your business use- whether you’re the one protected or restricted
- Remodeling/renovations- who can do what under what authority
- Subletting- option to sublease
- Rules for defaults and remedies, as well as late fees, businesses licenses/permits needed, insurance, any other restrictions/requirements for the space and business for the landlord’s protection
Negotiating the Coffee Shop Lease
1. Know what you want, but then negotiating a lease is all about creating a win-win situation for both you as a tenant and the landlord. If something matters to you, have it in writing. If your landlord or management changes in time, a verbal agreement won’t be enough. Your lease can free or restrict you, so make sure everything you want is in your lease. Think of your must haves, negotiables, and things that are just-in-case, but if you don’t ask, you won’t get it.
2. Know what your landlord wants, what their goals are, and tailor negotiations to meet their needs. Listen to what they’re giving away versus what’s important to them. Everything is negotiable, but know what to negotiate, and it’s not aways money. For instance, $1 in rent can make a big difference (so let them know what you can pay with the freedom to change how NNN will add up,) but if you can’t negotiate the rent, you can negotiate build out or other things you want in the space as seen above.
3. Find the middle ground. Negotiating is a game of different levers. Sometimes, you need to make a case for why you want it, knowing why it’s important for the success of your business. Listen to their case as well, and give up what you don’t need for what they do. Keep an open mind, if you can’t get something you want, maybe there’s something just as good that you hadn’t thought of before.
Other negotiating tips:
- Don’t negotiate under pressure. Be flexible with your timeline and take time to get the best deal. If you do have deadlines, don’t reveal them.
- If you make a concession, try to get one made in return.
- Start low, but not insultingly. Make your offers flexible.
- Know the market. The hotter the property, the less negotiation power, but if the landlord wants you, all the better. Win them over with your preparation, passion, and professionalism.
- Get all details on the table from the get-go (hence the LOI). You don’t want to deal with things later.
- Some say not to say yes to the first counter offer, and to always yet the landlord split the difference. Yet don’t over negotiate and haggle too much, a frustrated person can always walk away.
- Everyday you extend the negotiating process, a day is gone by that you could have been closer to selling coffee and making money.
A strong negotiation will come from having a solid plan from day one in the commercial lease process. Be prepared and informed. Having a business plan and vision, doing your homework and knowing your numbers, and being passionate and professional will help make people fall in love with you and your business concept. Know the market, and understand the value of the space, that they may see your value and invest in you. Seek to be a value, help them understand what you can afford and why, and be confident in yourself and what you see is best for your business.
These are just a variety of things to think through as they may apply to a coffee shop, and are just a small handful of things to expect on a commercial lease. Our brokers were the ones that communicated our negotiating points to the landlord and back, and were there to answer any questions with things we didn’t understand. The result is a long binding lease that then should be reviewed with a lawyer. The more time spent with the LOI/Proposal and negotiating right off the bat, the less time and money will be spent when the lease is ready to be reviewed and signed. Stay tuned to see how that worked out for us. We’re excited to see it come together!