Renegotiating a Lease

With economic factors continuing to squeeze the life out of businesses across the Nation, lease renegotiation is a tool we recommend to many of our prospective and existing funding merchants at this time. Many business owners are surprised to learn that one doesn’t have to relocate to save money on the lease.

In this economy, commercial real estate landlords are hesitant to risk incurring an extended vacancy period by allowing the space to turn over.

Typically, the lease should be 6-8% of the occupancy cost of a restaurant. The problem is that as sales decrease, the traditional fixed lease payment continues to shrink a restaurant’s margins over time. In addition, as the environment changes and foot traffic decreases (due to big boxes or anchor locations going out of business) the lease needs to tie directly into a percentage of sales.

Therefore, due to the current economic situation we recommend shorter term leases at 5 years or less with extensions available. Real estate is too unpredictable at this time and most “white table cloth” and casual dining restaurant’s valuation are much lower today than they were a year ago.

Three tips to renegotiating a lease:

• Conduct research on the commercial real estate market in your area
• Provide appropriate financial data to your landlord to prove the decrease in sales
• Be assertive, but respectful as to avoid being forced to relocate or close your doors

Should you require any assistance with your business or have any questions regarding this blog entry, please do not hesitate to contact Steven Velasquez at Global Swift Funding.