Every day you read sad stories about restaurant and bar owners who are taken advantage of by landlords (for example, local businesses like South Wedge Colony Tavern and La Casa). Most people underestimate the financial value and impact of a commercial lease. With shoestring budgets to open a new business, entrepreneurs try to save money on legal fees with a do-it-yourself approach to negotiating their lease, thinking to themselves “After all, it’s only a lease. “ I’ve preached this message before but it is worth repeating.
I’m here to tell you this is not place to pinch pennies. A typical lease in the “trendy neighborhood” in Rochester is around $4,000 per month. (In Manhattan that could be double, triple, or even more the cost per month.) $4,000 per month is $48,000 per year. A 5 year lease with three five year renewal terms and a modest 3% modest annual escalation is a contract with more than one million dollars at stake. If the lease also requires you to pay taxes, insurance and common area maintenance charges, you contractual obligation is likely to be 30%-100% more for additional rent. Now we are at a contract value of $1.3 million to $2 million. Add to that your renovation costs. That $4,000 per month lease is over a $1 million contract.
As you can readily appreciate, the financial losses can be devastating. Worse yet, most commercial leases require a personal guarantee. Even if the business goes bankrupt, you are still on the hook and risking your house, retirement accounts, and other assets you worked a lifetime to accumulate.
You would seek professional advice before spending this kind of money on any other purchase. Put the transaction in the right perspective, it’s not just a lease. It is a long term financial obligation that can bankrupt you.
Not Convinced? My fee for reviewing and negotiating a commercial lease is often less than $500. Even the most vigorous negotiations, I can’t remember charging more than $1,500 ever. If you engage my firm for a package of services such as a purchase transaction, a liquor license and forming a new business entity, the cost of the legal services for a commercial lease are essentially free. The discount I give in my package rates more than covers the cost of the legal service for reviewing your commercial lease.
I assure you, my firm is not the only one that has very affordable fees in light of the magnitude of the transaction. I want to assure you this is a sound investment. Seek professional legal advice before you sign on the dotted line.