Don’t Make the Mistake of Paying Full Restaurant Rent During This Crisis

Quick, what does a square foot of restaurant space in a major market in America lease for right now?

Bet you never thought you would be unable to answer that question – but no one knows.

But everyone will find out soon.

Just another one of a million new subjects the COVID-19 crisis has forced you to think about. 

Don’t Pay for Square Footage You Can’t Use

 Our businesses profit at full capacity during peak periods.

Each lease details the amount of square footage being leased, and a statement on “restaurant” being the permitted use.

But what happens when the government does not permit the entire permitted use, and your 4,200-square-foot restaurant becomes a 2,100-square-foot restaurant?

That’s what is happening here in Texas and many other states.

We just went to 50% capacity this past weekend and cobbled together increases in volume between those seats and blossoming and robust to-go and delivery programs.

Filling half of your seats doesn’t solve your problems, though – just as your landlord does not make money with only half of their shopping center leased, and your favorite hotel doesn’t show a profit at 50% occupancy.

Many operators in smaller restaurants were surprised when they did the math and realized that the 6-foot social distancing called for by science prevents them from even getting to 50% capacity. 

How to Talk to a Landlord

 To preserve cash – and stay in business when restaurants return to historical volumes – you’ll need to deal successfully and harmoniously with your landlords.

Give your landlord as much information as you can about your realistic ability to pay rent on reduced capacity.

Don’t hold back.

First, talk to their other tenants and understand how each landlord operates. 

Deal only with a decision-maker – and through phone or video, not email.

You’d be surprised how little landlords really understand about restaurant numbers.

Educate them.

Show them financial modeling and other information to give them a complete picture.

If you have PPP money and expect to be in a position for forgiveness, talk to your CPA about paying the full rent when it qualifies for loan forgiveness, and ask your landlord to take the deferrals or abatements you’ve already negotiated for May or June and apply them to July and August. 

Make Sure You Get to the End of Your Lease

 Remember: Your landlord has survival issues too.

Before they started their Zoom meeting with you, they were on camera renegotiating their own financing.

When you live out your lease, both parties win.

Many landlords do great things for their tenants. Some, however, just want to collect the rent. 

Over your whole system, balance the good guys with the bad so your overall rent factor reduces.

If they say, “No, you have to pay the full rent in the lease,” you say, “Thank you; plan on me calling you back in a couple of days with more information.”

Over to you. What action will you take today to reduce your rent factor during the complete length of this crisis?

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