Seasoned industry professionals know that everything in life is a negotiation, even your lease. Unfortunately, most of them learned the hard way: by signing one too many poor leases and getting burned.
We want to stop that cycle. One of our most popular sessions at Bar & Restaurant Expo 2021 (formerly Nightclub & Bar Show) was ‘Commercial Real Estate Negotiations After COVID-19’, presented by Homan Taghdiri. In a continued effort to make actionable education accessible for all, we invited Taghdiri – a licensed attorney in California and co-founder of Invictus Hospitality, a full-service hospitality consultancy firm – to speak on the topic again.
Taghdiri joined Bar & Restaurant for our monthly Instagram Live series, Side Bar. Side Bar is a casual discussion with industry experts that is open to everyone. We host Side Bar on the third Tuesday of every month. Join us tomorrow, November 23 at 11am PST / 2pm EST, for our discussion on harassment and active bystander training with Safe Bars.
You can watch Taghdiri’s Side Bar discussion here, or keep reading for four key takeaways.
Choose Your Experts Wisely
Brokers, agents, attorneys and real estate attorneys: know the difference so you can find the right expert for your needs. Brokers and agents can help you find great locations, but they tend to represent the landlord. The landlord is paying them, so that’s where their loyalties lie. An attorney will fight for you, and – in Taghdiri’s words, “will always have your back”, making sure the lease has your best interests in mind. When it comes to finding an attorney, work with someone who specializes in real estate. Just because they’re an attorney, doesn’t mean they’ll know the ins and outs of lease negotiations.
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Know Your Lease
There’s no such thing as a ‘standard’ lease, but there are different types of leases you should know. The three main ones to consider are: full service gross, modified gross, and triple net. A full service gross lease means the tenant pays a base rent, and the landlord pays for operating expenses like utilities, property insurances and property taxes. When the tenant pays a base fee, plus a proportional share of other associated property costs, like utilities, insurance, taxes, etc… the lease is known as a modified gross. If the landlord wants you to pay for everything, it’s called a triple net. With a triple net lease, the tenant pays rent and all other associated fees, including property taxes, insurance and general maintenance. Each type of lease comes with a unique set of advantages and disadvantages. As a savvy operator, you have to do the math and research ahead of time to determine which lease makes sense for your business.
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Guarantees
Landlords needs security. They’re turning their asset, the building, over to you, and almost anything could happen to it. To ensure their protection, they need a guarantee. For a number of reasons, a company should be the guarantor, but if your company is brand new and you don’t have any assets, the landlord might not accept that. Instead, they could ask you to personally guarantee the lease, but that comes with a load of individual risk. Instead, see if they are open to alternatives, like a larger security deposit, or different types of ‘burn offs’, which would dissolve the personal guarantee after a set amount of time. All of this is leading up to the biggest takeaway from Taghdiri’s discussion: everything is up for negotiation.
Everything is up for Negotiation
And we mean everything. You can negotiate the length of your lease, the security, the guarantee – anything is up for grabs. For new operators, incorporating options into your lease creates a safety net for you. Instead of committing to a 10-year lease, you can negotiate with the landlord for an initial two-year term, with the option to extend to ten years after. “This way, you have the option to be there for 12 years, but if something goes wrong after your first year, you’re only on the hook for one of those years because your initial term was only two years to start.” And lastly, remember Taghdiri’s ‘golden rule’ of negotiation: if everybody leaves happy, something went wrong. “If everybody is a little uncomfortable, they gave enough to get the deal done and get the job done.”
Homan Taghdiri is speaking at Bar & Restaurant Expo (formerly Nightclub & Bar Show) March 21-23, 2022. Early bird registration opens soon. Click here to be one of the first to know when registration opens.
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