Lease Basics For Franchisees

Lease Basics For Franchisees

 

Today’s blogpost is about leases. Along with your franchise agreement and perhaps a personal guaranty, your lease is a contractual document that will be with you throughout your journey as a franchisee. In fact, many leases are written to mirror the franchise agreement in initial term and option duration. In today’s post, I’ve put together 5 important clauses that you’ll find in your lease. Make sure you familiarize yourself with these clauses before you execute your lease agreement.

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How Much Should I Be Paying In Rent?

I often get asked ‘How much should I be paying in rent?’. The rule of thumb for a restaurant is based on your projected sales. Your all in rent ceiling should be no more than 6% to 8% of your gross sales. 

An example of this is as follows:

Lets say you have a 3,500-sf space at an all in rent of $20 psf. Your annual rent for this space is $70,000. Lets also say that your restaurant is projected to do $1,000,000 in annual sales. Your rent ceiling would be equal to $1,000,000 (8%) or $80,000 per year. In this example, the proposed rent is lower than the rule of thumb, so judging by industry standards and assuming your operating your restaurant efficiently, this rent rate is manageable.