HOW TO SMELL A RAT LEASING A RESTAURANT

In this weak economy, there are lots of commercial real estate foreclosures, properties behind in real estate taxes and even massive IRS and State liens on a property that unless the buyer/new tenant does his or her homework they could face huge financial losses.  These are facts landlords won't tell the buyers/new tenants about in hopes of collecting large sums of money from the buyer and leaving the buyer/new tenant high and dry when the bank forecloses. 

If you are entering a deal with a landlord that owns the business and real estate, then you need to do your homework to make sure when you buy the business and sign the new lease that you’re not going to be on the streets a few months later and out some big bucks to boot! What I mean is if the landlord is behind in his mortgage, real estate taxes, and grossly upside-down on the property, then he could lose the property and you will lose the lease as well.

Before I jump into details, always get an attorney’s advice that is familiar with commercial leases.

There are a few steps you can do to help protect your investment.  First, you should have a title search placed on the property. A title company can do this for a couple hundred dollars. The title search will insure (1) the person representing to be the landlord is actually the landlord and should be the same entity on the lease agreement. (2) The liens on the property will be recorded on the title report so you can understand how much debt is on the property. If the property is grossly upside-down, then be cautious because the landlord could take your money and walk away from it all. (3) And finally, the title report will show you if other neighboring properties have an easement on the property that could affect your business.

Second, you should get a tax report to insure the landlord is current on his taxes.

Finally, you should ask the landlord for a loan statement on the property.  Make sure it is current and not one that’s six months old.  The statement will tell you that the landlord is current. If the landlord refuses to give you the statement, then walk away from the deal because there is probably a foreclosure proceeding underway. 

So do your homework and save yourself a lot of heartache.  We at SellingRestaurants can help you navigate through these issues, saving you your hard earned money!

We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions. 

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.