Lease guarantees are a tricky subject and aspiring start-up restaurateurs should be very careful, and well advised, as they broach the subject in their negotiations for a leased space. Landlords will almost always require some form of lease guarantee in the initial round of negotiations, but they are typically open to negotiating the length of the guarantee and sometimes can be convinced to waive it altogether. If a landlord is going to contribute a tenant improvement allowance (TI), that is a certain amount of funding toward the tenant’s build-out, they will almost always want a lease guarantee to secure their investment in the event that the tenant vacates the premises prior to the end of the lease term. Often they will stipulate a guarantee for the entire initial term of the lease, but this is usually negotiable.
From the tenant’s perspective, i.e. the start-up restaurateur, enforcement of a lease guarantee can be the ultimate insult to injury scenario. If the restaurant is not profitable and the owner has to close it down prior to the end of the lease term, a significant loss of investment is likely already incurred. Then to be held responsible for continuing monthly rent payments can be gut-wrenching. When W&W Restaurant Consulting Group approaches a lease negotiation on behalf of our clients, our first motivation is to eliminate a lease guarantee requirement. Our success is dependent on many variables. For examples; how long the property has been vacant/listed; if there’s competition for the space; and, how much TI allowance the landlord is willing to contribute. We are often successful in limiting the guarantee to a time frame that is reasonable and fair to both parties. In any event, be wary of lease guarantees – be optimistic about your prospect for success, but never forget to consider the worst-case scenario.
W&W Restaurant Consulting Group