Serving the New Orleans Metropolitan Area

Hidden Costs You Should Be Aware of When Leasing or Buying

Again unlike Residential, Commercial can come with a lot of moving parts and the more you do your homework and gather a great support system the better your decision making will be.
There are a few hidden cost items I would like to discuss and make you aware of. All sites have different makeups even new build or build to suit.
Because New Orleans has a tremendous amount of restaurants there is always an opportunity to acquire an existing one but in surrounding suburbs we have been seeing a lot of build to suit restaurants. These points are all good for any existing business that would have FF and E. Restaurants are particularly tricky.
Site Selection basically falls into 2 categories:

  • Existing
  • New

Existing sites are usually easier to retrofit and less costly than new build but depending on your needs and your branding, depends on your site selection.

  1. Zoning : It is very important to check you are in the correct zoning. Never just accept that the zoning will allow you to open what you want to open. Especially after Hurricane Katrina, the zoning laws have changed drastically.
  2. ADA compliant : Make sure the space is ADA compliant. Again those laws have changed and if you are trying to occupy and existing space this is extremely important. A good Architect is someone to engage to help you with this.
  3. Environmental : the banker usually spear heads this but make sure that if it’s an existing space that what was there was not an environmental hazard.
  4. When you negotiate a lease make sure you put options to renew and lock down the terms. This will help if you ever want to sell your business. The value and term of the lease is very important to a potential purchaser. “Options are personal to tenant.” This has the effect of cancelling the right to exercise your option if you assign the lease. If you plan to sell your business, having the right to extend your lease can make or break the sale of your business and the price you receive. Also make sure that the default clause does not give up the tenants right to assign if default has been cleared up.
  5. Assignments clause in a lease : This part of the lease is very important if you plan on building the business and then selling. Make sure that there is a good exit plan in place in your assignment clause so that you keep the value of the ongoing business in place. An assignment provides the ability to get out of a lease early or to sell your business. Clauses can be mostly pro – landlord so make sure there is significant language in your assignment clause that covers your ability to assign without too many restrictions. Some assignments do not release you from your lease obligation. Most assignments are in a lease to protect the landlord from the tenant assigning the lease to collect rent over and above the lease amount. A good attorney can help you with this language.
  6. Impact fees : Impact fees are for new builds or build to suit, make sure that you know who plans on paying for these and there is no set standard because each municipality will have their own way of charging these fees. Impact fees can get very expensive so find out in advance who pays for what and what the municipality will expect.

All of these points are to help you do your homework. In any scenario, zoning, environmental, ADA compliance, FF and E true value all are important points to investigate and make sure there are no surprises. If you are purchasing an existing business the FF and E of the business is extremely important. In my experience in a restaurant the hood is a big factor and condition of the equipment, proper grease trap, is the equipment leased or owned etc.All of these factors have to be investigated and properly inventoried. Same goes for any business that will be selling their FF and E.

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