What to consider before selling your restaurant…



Max Dylan Lu, Licensed Real Estate Broker,

& Elke A. Hofmann, Esq.

Originally Posted: July 25, 2012



Do you have more than 8 years remaining on the lease?


New operators would typically look for at least 8 years remaining on a lease, to allow enough time to recoup an investment in a brand new business.  


Getting any additional time from the landlord may seem as simple as an additional addendum to a lease, but realistically it’s another transaction all together.  You may want to approach your landlord early, to see whether the landlord would be open to a lease extension.


Are you allowed to assign or sub-lease?


More importantly, you should ask yourself, “will my landlord let me assign this lease?” 


Most leases have a permission giving the tenant the right to assign the lease with the Landlord’s consent, “which shall not be unreasonably withheld.”  This may not be ideal language for a tenant, but we can work with it. 


However, be sure to verify that the lease doesn’t prohibit assignment.  In addition, the lease may have other restrictions or requirements, such as additional payments to the landlord, or increases in the security deposit or the rent; these kinds of provisions will affect how attractive your lease is to a buyer.


Even leases that permit assignment usually require that a tenant be in good standing, so consider the following: Have you been on time with your rent?  If not, will he be paid all back rent when you sell? Are there any reasons your landlord might make it difficult for you?  Does he despise the fact that you are paying below market rent, or is he content with a simply responsible rent paying tenant?


Is your liquor license in good standing?  Will the prospective buyer get approved?


Have you had any violations from the State Liquor Authority? Are there any open violations? Violations that aren’t settled, or having a number of violations, may make it difficult for a buyer to get approved for their own liquor license.  


In addition, you need to consider where you are located.  The community board is also an unavoidable hurdle when it comes to liquor license applications, and each community board has its own policies and approaches.  For example, Community Board 6 currently does not approve any licenses for places open later than 2 a.m., even if you have been open until 4 a.m. for thirty years, while Community Board 3 allows “grandfathering” of some 4 a.m. licenses when you sell a business.  Many community boards will see a sale as a chance to fix any issues, so you should be aware of whether your buyer might have any issues with the community board. 


Is there intrinsic value in your lease, layout, equipment, infrastructure, décor?


We hear it all the time:  I will never sell my restaurant; my restaurant is priceless.  Or, I will sell my 500 SF restaurant for a million dollars.  


We understand that often times your restaurant is your life’s work, but unfortunately it plays no role in pricing of the sale.  When it comes to pricing, we must look at it from the point of view of the market; through the eyes of the average ready, willing, and able buyer.


Things to evaluate are:  The size of the pool of buyers for your specific space, if there’s actual value in the used fixtures and equipment, if the space is already adequately vented for cooking , if the décor makes sense for anyone to keep (or is it a gut job), if the layout is an efficient use of the space (or is your 2,000 SF only seating 30 people).  Your buyer will also want to know exactly what is being sold, so it helps to start with an accurate list of all of the major equipment that you own, and also identify any other equipment that is financed or leased.  


Are you selling the space or the entire business?


Because we are in NYC, often, a tenant can get a good chunk of money just by assigning an under-market lease, and earn a few extra bucks for the much depreciated equipment.  


However, if you are looking to sell your business based on the income of the business, you have to be ready to prove that income.  To maximize the sale of a money-making business, you need to be open to an audit from prospective buyers.  Not that it matters to every single buyer, but to maximize the number and quality of prospective buyers, including institutional buyers (who will thoroughly analyze your books and records), you will want to show an accurate history of revenues and expenses, and tax returns.  


So, if you feel that your books are not prepared for such scrutiny (and can’t be cleaned up), simply assigning the lease may be your best option.

* * *


If you are ready to sell, call Max Lu at 212-203-4395.  As a brokerage, we are only paid upon the successful sale of your restaurant/lease.


Elke Hofmann can help you with an extension of your lease with the landlord before you sell, resolving any liquor license issues,  transfer of your liquor license, issuing a new license, and selling your business.  She can be reached at 212-487-9100 or by email at elke@eahlaw.com.