Signing a commercial lease is one of the most consequential decisions you will make as a hospitality operator. Get it right and your location supports your business for years. Get it wrong and your lease can be the single biggest obstacle between you and profitability regardless of how good your food is.
1. Understand the full cost of occupancy
The rent figure quoted is rarely the full cost. Outgoings — which can include council rates, building insurance, land tax, water and common area maintenance — can add 20 to 40 percent on top of the base rent figure. Make sure you understand the full occupancy cost before you assess whether the site is viable for your concept.
2. Verify the foot traffic data yourself
Do not rely on the landlord’s traffic data or their description of the location’s performance. Visit the site yourself at different times across at least two weeks. Count the people walking past. Note the demographics. Check whether the foot traffic matches the customer profile your concept needs.
3. Understand what you can and cannot do to the space
Leases often have restrictions on what you can do to the premises including signage, fit-out changes, ventilation and exhaust modifications. If you need to install a commercial exhaust canopy or make structural changes to accommodate your kitchen, confirm with the landlord in writing before you sign that these are permitted.
4. Negotiate the make-good clause
A make-good clause requires you to return the premises to its original condition at the end of the lease. Depending on the fit-out you install, this can be an enormous cost at exit. Negotiate the make-good terms carefully and consider getting a building consultant to assess the likely cost before you sign.
5. Have a solicitor review the lease
Commercial leases are complex legal documents and the standard terms often favour the landlord significantly. A solicitor with commercial property experience will identify clauses that could cause you problems and negotiate more favourable terms. The cost of this advice is small relative to the commitment you are about to make.
If you want help assessing whether a site and a lease are right for your concept, Pestle and Mortar works with operators at this stage of the process across Australia.
About the Author
Wayne Farmer is the founder and chief consultant at Pestle and Mortar, Australia’s hands-on hospitality consultancy. With experience running hotel kitchens, boutique dining venues, and a successful catering business, Wayne has spent his career helping Australian restaurant, cafe, and catering operators build more profitable, better-run businesses. Learn more about Wayne and how Pestle and Mortar works.