Commercial Lease for a Coffee Shop - what should I be asking?
March 23, 2014 5:50 AM   Subscribe

So I am working on a commercial lease. Advise resources or experience?

So my previous question about coffee shops has a follow up.
I'm about to enter a lease for the premises.
The lease includes all the plant and equipment for the coffee shop, with it all owned by the landlord. Rent is $7k per month, which is about 15% higher than a bare premises would be, but a bare premises would need planning approval and lots of work to get to a going concern.
She has mentioned she paid $30k for this gear some years ago from a failed tenant. The gear is old and worn out, over the term of my hoped for tenancy of several years much will need replacing, and I want to be able to source my own gear.
I'm planning on asking for an option to purchase the plant & equipment for $25k with a corresponding rent reduction to $6k.
My question, is have I missed some good ideas? What would you do? And are there any online resources for commercial lettings that might spark some more ideas?
Any other advice?
posted by bystander to Work & Money (5 answers total)
I feel like this is one of those situations where the answer is 'talk to a lawyer' even if it's an irritating AskMe answer. You really need someone familiar with the restaurant industry where you are who's seen the sorts of things that end up leases. (I don't see that this person has to be an attorney, but attorneys could be one place to look for people with relevant experience.)
posted by hoyland at 6:05 AM on March 23, 2014

Lawyers are seldom business-minded and what makes legal sense rarely makes business sense. You need business advice, how can you make this work finacially. I'd find another shop owner and ask them about their experiences. Once you know what you want THEN talk to an attorney to draft up the legal contract (which is within an attorney's scope of competence.)

I am on my fourth small business. Take it from me: Rule number one for a small business is CASH FLOW. You need a steady stream of cash to pay salaries, supplies, taxes, and other bills. You might be able to negotiate with suppliers and employees when money is tight - the tax man is a greedy, impatient bastard who will happily drive you out of business the first time you cannot pay. The best business idea in the world will go into the ditch if you don't have cash flow. Husband your cash and don't commit yourself to any large cash expenditures until you know what a full year's income looks like. One busy month is as poor a measure as one slow month.
posted by three blind mice at 6:35 AM on March 23, 2014 [1 favorite]

Make sure that you have the premises inspected by either someone from the town or a some other building inspector who knows his shit. It's likely that before you open for business you will need a new CO, which means that the building inspector will come in and make sure everything is up to code. Also, make sure that before you make any minor or major structural, electric, etc. changes, you find out if you need permits.

Code may have changed since the last owner opened, or things could have been put in place since the last inspection. It's not the landlord's job, necessarily, to make sure that things are up to code for you to open, and it's likely that your lease has words in it along the lines of "By signing this Lease, Tenant has inspected the premises and is satisfied by its condition and said signature indicated that Tenant is inspecting these premises as is, except for the items specified in Landlord's Work, exhibit xyz."

(I'm working for a property manager/lawyer office these days, and a woman rented a storefront from us for a spa. She did not do enough research/due diligence, signed the lease with a clause saying she accepted the premises as is, and then she started moving sprinkler heads and putting up new walls. When the town came out to do an inspection to see if she could get her CO to open, she not only had to rectify things from the previous tenant, who had sold her the remaining contents of the store (some that were instances of code change, like not having panic bars at the rear exit, and some were things done without legal permits, like the 2nd hot water heater), but she also had to pay to get permits for the new changes she had made. Now she has been calling us, freaking out, because she expected to open on March 1 and doesn't have the cash to cover all of these permits and rectifying of illegalities.

As much as I feel for her, and I do, she didn't do things right from the beginning to try to save money, and now she's quite literally paying for it.)

All that said, I now see that you are in Australia, and my experience is in the US (specifically NY), so likely the laws are completely different. I still think that you should have someone knowlegdable in local laws & architecture inspect the premises with you before you sign anything, though!
posted by firei at 7:06 AM on March 23, 2014

I'm planning on asking for an option to purchase the plant & equipment for $25k with a corresponding rent reduction to $6k.

You mentioned that the landlord bought that equipment for $30k a few years back and that most of it is old and worn out. Is it even worth $25k? You'd have to stay in your lease more than 2 years before a $1k/month reduction would even break even at that price.
posted by dcjd at 8:59 AM on March 23, 2014 [1 favorite]

Are you using a leasing agent? The first time I was involved in leasing space, it was a real eye-opener when he took a red pen to the not yet signed lease, crossed thru about half the provisions in the lease, writing in the margin "per state law". That is, many of the clauses of the lease, such as penalty for late payment, who replaces the light bulbs, etc. were illegal. Using the agent saved us many times his fee over the life of the lease.
posted by at at 10:08 AM on March 23, 2014 [2 favorites]

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