5.X — The Rent Conversation #
Total occupancy costs — base rent plus NNN expenses plus percentage rent plus CAM — should be 6 to 8 percent of gross sales. If you are above 8 percent, you are working for the landlord. If food rental alone exceeds 10 percent of sales or bar rental exceeds 15 percent, your lease is strangling your operation.
Fixed yearly rent increases typically run 2 to 4 percent. Push for the low end. If the landlord wants CPI-based adjustments, negotiate a ceiling of 5 to 6 percent. Lock your rent for multiple years when possible — adjustments every two to five years are far better than annual escalations.
Triple Net means you are paying pro-rata shares of real estate taxes, building insurance, and common area maintenance. Cap everything. Cap real estate tax liability to the assessed value at your lease inception date — this shields you if the building sells and gets reassessed. Cap CAM expenses to prevent runaway increases. Know exactly what CAM covers and watch for hidden charges.
If the landlord insists on a percentage lease, negotiate a recapture clause that allows you to deduct your NNN expenses dollar-for-dollar from your percentage rent. The math: if your base rent is $60,000, percentage rent is $20,000, and NNN expenses are $15,000, a recapture provision means you pay $80,000 total instead of $95,000. That is a 16 percent savings — and most operators never ask for it.
Know the market before you negotiate. Talk to commercial brokers. Call the numbers on “for lease” signs. Ask other operators what they pay. Average those rents and negotiate from data, not hope.
