The last few years have been difficult for operators. Many restaurants have been hit with a poor economy, rising
wages and the loss of area businesses. All of these factors impact the profitability of a restaurant and in turn,
the ability to make the rent payment. This reality has been reflected in the declining number of independent
restaurants as many have closed their doors, leaving their landlords with empty buildings.
A number of restaurants, including chain, independent and franchise businesses have successfully worked with
their landlords to lower their rent. In a Foodservice Radio interview, Lou Boemia, Vice President of Lease
Resolutions, Inc. explains how the focus of many landlords has changed, and how to best approach a landlord
"Landlord focus has been on tenant retention," Boemia says. "It is cheaper to reduce the rent than it is to evict
and replace the tenant, because you have brokerage commissions, tenant improvement allowances, taxes,
maintenance and insurance, along with the legal costs."
Boemia indicates that rents are going back to more realistic and sustainable levels. "Back when the economy
was going gangbusters, rental rates set by landlords were based upon the development costs of the shopping
center plus a rate of return on investment'" says Boemia. "We had a correction in fair market value rental rates.
Now it has gone back to where it should be, where the space, land or rental location is only worth what the
retailer or restaurant can generate in sales volume."
Boemia outlines several steps to take when renegotiating a lease. First, start by getting comparable rates for
similar space in the area. This will determine if your rent is at or above the current market levels. "Next, look at
your rent to sales ratio," Bomeia adds. "For restaurants, your rent to sales ratio should be below 8%. Once you
get above 8 to 10%, you start struggling."
It is also important to understand the needs of your landlord so you can create a win-win situation. There are a
number of different options to get the lease reduced in the short term, including extending the length of the lease
or modifying the base verses percentage-of-sales ratio. Understanding your landlord's financial obligations will
help you propose a solution that works for both of you.
"Once you show landlords on paper that they are financially better off with the rent reduction, they are likely to
come around," Boemia concludes. "Landlords want to do what is most financially feasible. That is what has
helped us negotiate over $5 million dollars in savings for 220 different clients."
For more information on Lease Resolutions, visit the website at www.leaseresolutions.com
Copyright 2014 Foodservice Radio
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