Starting, Owning and Marketing A Restaurant Blog|Starting and Owning a Restaurant - Construction, Planning, Marketing, Opening and Managing a New Restaurant

In the previous post, we outlined the problems we are having enforcing a provision in our lease concerning the adequacy of the HVAC system. Temperatures are uncomfortable in dining areas and the lease warrants that the A/C is sufficient to operate a restaurant.

In many cases, large properties are managed by management companies who represent the actual owners of the property. While the management company handles routine maintenance and operation of the property, they do not sign or obligate the actual owner. Your lease is always between you and the owner to be enforceable.

The management company has an obligation to operate the property at the lowest possible cost to the owner. Most of the time they get a percentage of the rents and other fees to maintain the facility. However management companies don’t always act in the best long term interest of the owner. For instance, if they are notoriously poor managers with sloppy properties and inconsistent maintenance, tenants may move or prospective tenants may shy away from the property.

Restaurants should always copy correspondence directly to the owners when involved with problems the management company seems to ignore or refuse to handle. Many owners are totally unaware of what transpires between tenants and the property managers. If owners continue to have issues coming from tenants, you may find service improve through regular contact. Keep in mind, once you go around the management company, your relationship will be adversarial in the future. Sometimes you have to take action when it affects the comfort and expectations of your guests.

We have tried to keep you up to date of all the problems, plans and changes that occur when buying, owning or starting a new restaurant. One of the early posts included lease negotiations and the importance of getting verbal assurances and other matters in writing. We are now faced with enforcing a lease provision the landlord is tryng to avoid.

In our lease agreement we had a provision that called for the landlord to warrant that the exisiting air conditioning was sufficient to run a restaurant. At the time I was very suspicious that there was enough capacity from my experience in other operations. The landlord had an “expert” do an engineering report that said there was enough cooling. Experts and consultants for anything don’t run restaurants! We insisted that a provision be put in the lease regardless of the engineer’s report.

Since we built the restaurant in the fall, outside temperatures here in Florida were moderate. However, now that summer is in full force, temperatures are in the low 90’s outside. The summer heat, a full restaurant and doors opening and closing find us with 80 degree inside temperatures. Customers are uncomfortable in busy times and many have expressed their displeasure.

The landlord was notified of the problem in early June and has done little to address the situation. Little, that is, until we asked our attorney to pursue the matter and enforce the clause inserted in the lease. Now they have sent HVAC people out to make “minor adjustments”. Nothing has changed. This week we will probably have to file an action in civil court to enforce the lease provision. We will post the results and on going problem resolution.

As a side note, we also had a provision in the lease that says if there is a dispute between the landlord and the tenant that requires an attorney to become involved, the winner of the action pays for the attorney fees of the other party. We are confident the owner will need to pay our attorney and costs.

Monday and Tuesday have been busy. Here are just a few of the tasks and actions since the lease signing:

• Over the weekend we cut an old lock off a walk-in that no one had the key for and replaced it.
• Had several sets of keys made for access to the location. Contractors and others will need them. The locks will be re-keyed prior to opening.
• Checked all electrical boxes to determine what circuits supplied various boxes. The landlord is leaving electric in their name until air conditioner certification is made according to the lease.
• On Monday calls were made to the engineer/architect, contractor and another hood contractor. One hood quote was received that seemed to be high.
• After talking to the engineer, it was clear he had done nothing since our last conversation. He put partial blame on the contractor.
• Late in the afternoon I met with another general contractor who wants to do the project. He and his engineer will meet with me on Wednesday. I must have a backup plan if the current contractor and architect can’t get moving.
• Late yesterday evening the current general contractor finally returned my call. He, of course, blamed the delays on the engineer (who was his choice, as I reminded him). We cannot pull any construction permits without drawings. He promised he would get the architect moving and call me today to confirm the drawings would be done quickly.
• Today I met with the alternative hood supplier to obtain a quote, which he will send to me.
• The general called me around 11 AM and said the engineer would complete the drawings quickly.
• Later in the day the engineer called for several pieces of information he needs to finalize the draft of the drawings. He also wants to meet to discuss some alternative ideas I have gotten from other sources. We agreed to meet one evening this week.
• The draft of the business plan has been completed, but I haven’t had time to review it.
• My regular heating and cooling guy agreed to come and look at the walk-in and a two door refrigerator that hasn’t been run in a year. He will see what work needs to be done.

Based on what has occurred, I am feeling better about getting the project moving and having the plans in place to make changes if necessary.. More as the week progresses

This week has been a lesson in patience and persistence that culminated in the signing of the lease for the new restaurant yesterday. To put the whole lease negotiation behind us is a relief, but not without some misgivings about the “recession” we appear to be in and the closing of thousands of restaurants across the country.

The doubts, fear of failure and even a “slick-willie” attempt by the landlord’s attorney to get a long term personal guaranty on the lease from me, all have to be put aside and concentrate on getting the construction done and the restaurant open.

The events this week that have occurred include;

• Received a quote on a hood system of almost $12,000. Need to get second quote. $2000 higher than expected.
• Bank account opened.
• Security deposit and first months rent paid at lease signing totalling over $8000.
• Architect complaining about how long it has taken to get lease signed and now he is very busy with another project. Falling on deaf ears as far as I am concerned!
• Son has numbers plugged into business plan and completing text.
• One contractor is out of town until Tuesday, but did send forms to landlord for a “Notice of Commencement”. This is a document filed with the county that puts everyone on notice that construction is starting and the contractors have lien rights until work is done and paid for. Common form necessary for permits.
• Scheduled meeting with another contractor due to the lack of communication from the original contractor. Need a “plan B” if I continue to have problems.

Next week’s goals are;

• Pull permits for demolition of existing walls, ceiling and materials.
• Check on condition of existing walk-in box at the location.
• Meet with contractor and architect to move project along.
• Start getting ideas on wall finishing.
• Watch for bargains on equipment and seating from closed restaurants.
• Get electric switched on at the location.
• Start working on marketing plan and creating “buzz” during construction.

With the economy deteriorating and consumer spending patterns shying away from restaurants, I will be looking at ways to preserve cash in the construction and pre-opening phase. While the plan is to build the restaurant from cash reserves, I must remember I have three restaurants to watch cash flow and be able to weather any drastic change in revenues.

Five days after we anticipated the lease being approved by the landlord and signed a day or two thereafter, we are still waiting. According to the leasing agent, the lease should be ready this afternoon. However, I will be out of town for three days later this week and have no intentions of signing until I get everyone back moving again.

Remember, when you sign a lease the clock starts ticking. In this case there are no lease payments until the Certificate of Occupancy is issued or 180 days, whichever comes earlier. However, CAM (common area maintenance) charges start immediately. When your lease payments start upon the day of signing, you want to make sure you are ready to begin your work to get open. Each day costs you after you sign.

Here is what has occurred in the last few days:

• We are beginning to work the details of the business plan.
• We have the format for the marketing plan, which will begin prior to opening.
• The ventilation hood contractor has been advised to complete his quote according to the preliminary drawing done by the architect.
• Our accountant is working on the formation of the LLC and securing a Federal ID number. He will then set up our initial records for bookkeeping purposes.

This is the time in a restaurant startup that you feel helpless to make things happen. Until the lease is fully signed out, there is always the possibility that something could go wrong. Your investment is starting to climb, with attorney’s fees, architect fees, accountant fees and your incidental costs.

By early morning on Tuesday, July 8^th, I hadn’t heard anything on our lease issues. It was a busy day as I prepared to get away for a brief five day vacation in Key West. My concern that we could never meet an estimated opening date of October 1^st had escalated to a certainty.

Since the day was extremely busy trying to take care of other business matters before I left town, I decided to put the deal out of my mind until I got back. As usual, as soon as you make a decision things change.

About 11:30 AM the leasing agent called saying she had been on an extended holiday and was tardy getting back to the landlord and me. She said his answer was yes to all three issues. She wanted to confirm that my attorney would prepare the lease wording for these matters and the other minor issues we had come to terms with the previous week. In essence, we had a verbal meeting of the minds and needed only to reduce the agreement to writing.

At noon I had a lunch meeting, but my real attention was focused on all the parties I had to contact that afternoon to get everyone on track to put the project in the fast lane.

The contacts were made to my attorney, the architect, the contractor and one of the potential hood contractors. I explained how late we were in getting started and everyone needed to help make up the lost time. As usual timing wasn’t good. The contractor was in North Carolina, but was returning the next day (when I was leaving). We scheduled a meeting for Monday July 14^th at the location.

The architect was leaving on the 10^th and wouldn’t be back until the 17^th. The hood contractor was in the middle of a big project in Tampa and my attorney was in court.

More delays. I sent each an email with my concern for the delays and hoped we could make up the time. Not a good way to start the ball rolling!

After about four days, we received a reply from the leasing agent reporting the landlord’s response to our requested changes in the lease. Of the eighteen changes we had requested, we were down to about three major issues.

The first roadblock is a lease the landlord had granted to their anchor restaurant tenant that barred any new restaurants. While they were allowing our operation because they are a dinner only seafood house and we are breakfast and lunch only, there is a problem. If the anchor tenant changes their business model to include lunch, we would be competing with a 250 seat operation of a major chain. We want the right to terminate our lease. The landlord isn’t willing to go along with this; at this point anyway.

The second deal killer is the exterior of the existing structure. It is dirty, needs painting and a few stucco repairs. Essentially, the landlord’s reply is that he is not spending any more money to get us in the space. Of course, we aren’t going to spend more than we have to either.

The third issue is the size of a grease trap. They want a 750 gallon minimum and feel they have the right to dictate this, since they are paying $55,000 of the construction costs. We only want to put in the minimum the code requires.

Our reply to these three items was quick (same day):

1. <!–[if !supportLists]–><!–[endif]–>We cannot sign a lease knowing we are about to spend $250,000 and more to build a business with the possibility that a major corporation could change their business model and put us in a very difficult position. The risk isn’t worth it.
2. <!–[if !supportLists]–>The exterior is the landlord’s responsibility, now and in the future. We are not asking for anything that isn’t already required in the lease. We asked why we would want to spend this kind of money to bring people to a dingy, run-down entrance. We don’t want to start a relationship that is confrontational, but it IS already in the lease!
3. <!–[if !supportLists]–>We can agree to the 750 gallon grease trap IF the landlord is willing to pay for additional costs that may be required due to the size they are demanding if other utilities have to be moved.

The first two issues are real and we cannot move forward without an agreement. The third issue is a negotiating item that we can back off of if necessary; again, to give the landlord some feeling of fairness and control.

The balance of the lease can be modified to meet both parties’ goals.

We will see what happens. We responded on the eve of the 4^th of July. We will not anticipate a response until the next week.

The first draft of the lease sent to me was typical of any commercial lease. It was a one-sided document favoring the landlord that no tenant would sign; even with the assurance of the leasing agent it was “standard” and used for properties all across the country. There is no such thing as a standard lease. If you want more on this subject visit here on examples of clauses that can put you out of business.

I reviewed the first draft along with my legal counsel and together we came up with about eighteen necessary changes. The attorney’s letter was sent to the leasing agent to be forwarded to the strip center owner. The good news was that apparently they were not involving legal counsel on their end; at least not yet.

Some of our requested changes, we anticipate being rejected. This is part of negotiating; asking for things you know you aren’t going to get. This allows the other party to maintain a form of control and not feeling like they are giving away too much.

The real estate agent contacted me about four days later. They were willing to meet most of my basic terms except for one. The landlord was only willing to contribute $55,000 to the construction costs. These funds would be placed in escrow and disbursed as the contractor submitted the bills and the leasing agent confirmed the work was done.

We essentially were within $5000 of having a deal (subject to the formal lease terms). I knew in my mind that construction was going to take four to six months. That meant they were giving me free rent for that period of time. That was $12,000 to $18,000, depending on time. I wondered if they recognized that. I quickly went back over the terms with the agent. She confirmed all of the terms. I stated we probably have a deal, deciding not to push my luck.

I reminded the leasing agent she was supposed to have gotten a copy of their standard lease to my attorney. She had forgotten and agreed to get that done and work on modifying the lease to fit the terms we had agreed upon.

As anticipated the leasing agent called me Monday morning. We decided to meet late that afternoon at the premises. I knew I still wasn’t totally committed to making this deal. I had to do some planning and research to confirm the numbers I had floating in my head.

My goal was to stretch their offer even more and give me time to mentally commit to the transaction based on good business planning. I needed time.

At the meeting, I pointed out many problems with the space. There would have to be a grease trap installed, electric upgrade to code, ADA compliant bathrooms installed and the HVAC system must accommodate the needs of a restaurant. The exterior was a little rough and the landlord would have to do some cosmetics. Of course, I already knew these things months ago. However, my sob story of costs was making an impact on the leasing agent. My argument was that the landlord would have to do many of these things for any tenant, not just me.

I held my ground and stated it would have to be a $60,000 contribution to construction costs from the landlord, plus:

• A non-conforming sign for the premises that was different from their conventional awning signs. I wanted a 5’ X 10‘ lighted sign.
• Sign space on the main center sign.
• Confirmation by a mechanical engineer that the HVAC system was sufficient to heat and cool a restaurant environment.
• · An out clause in any lease that if for any reason codes prevented me from operating as a restaurant, the lease would be null and void.
• I would want no rent to start until I got my permit to operate from the county (which meant after construction).
• No personal guaranties would be offered due to the inability to convert to other type of restaurant if breakfast/lunch concept didn’t work (referring to the non- compete in the anchor tenant’s lease).
• Exclusive ability to serve breakfast and lunch. No future tenants can compete.

I asked the agent to send me a copy of their standard lease for my attorney.

All of this was a way to buy additional time for me to put together a business plan and make a final decision to commit to the deal. The agent agreed to get back to me after discussing these additional requests.