Opening a restaurant in London: the guide
With almost 20,000 restaurants and a population ever more eager to discover new culinary experiences, London is a destination of choice for opening a restaurant, and many restaurant owners from overseas have been lured to the English capital. If the project is tempting, it is not without obstacles. So how do you go about opening a restaurant?
Two options can generally be explored: buying an existing restaurant or creating a restaurant from scratch.
Signing a new lease
The 2nd option when opening your restaurant is to sign a new lease. This new lease may concern premises which already exist but whose previous lease has expired or has been cancelled (lease surrender). Or it may also quite simply be a new building looking for its first tenant. In both cases, competition is fierce to obtain these premises because the new tenant has the opportunity to directly negotiate the terms of the lease as well as periods of free rent which can be significant. Having an expert by your side is therefore strongly recommended because they will not only help you find that gem but, above all, will help you to negotiate the very best terms for your lease!
When negotiating your new lease, you will often hear the notion of “outside or inside the act” which refers to the “Landlord and tenant act 1954”. To simplify matters either the lease is “inside the act” in which case you have an automatic right of renewal or it is “outside the act” in which case the lease is not automatically renewed when it expires.
Today most of the new leases are signed “outside the act”, so it is important you understand your obligations and also clarify the following points:
- What is the duration of my lease? Is there a break clause?
- How much is the deposit?
- What are my obligations in terms of the maintenance of the building? And of the premises?
- Will there be rents reviews? How will they be calculated?
- What is my way out if I want to leave the premises sooner (reassignment, sublet, surrender)?
Finally, last but not least, you will have to make sure that the landlord has agreed for the premises to be turned into a restaurant. A similar check should be made with the council who will classify the various premises in accordance with the activities they can accommodate, the famous “classes of use”. The legislation has recently been relaxed, but beware of unpleasant surprises!
All these points will be entered in the lease by a solicitor (lawyer) who will advise you on the legal aspects of the lease and who will take care of the transaction for you. In the UK, there isn’t one notary who will handle the entire transaction for all the parties. Here, each party hires a solicitor and the solicitors must work together to bring the deal to a close.
The problem is that a solicitor will enlighten you on what is legal and what is not. They will explain what the lease contains and your obligations, but will not be able to advise you in the negotiation or in the resolution of any problems. In addition, solicitors only intervene once the negotiation is over, that is to say once the offer has been accepted. It is therefore often too late! This is why, once again, it is important to be accompanied by a professional.
How much does it cost to open a restaurant?
Opening a restaurant is not a trivial project and requires a significant budget. Each project is of course unique and the parameters numerous.
However, we can list the following costs:
- Premium: already mentioned above, this is the cost of acquiring an existing lease. That being said, the market is changing quickly and it is now possible to find premises already fitted out without paying a premium. Don’t worry, we’ll find the perfect fit for you!
- Business Rates: it is the equivalent of the property tax. For a “normal” restaurant this tax should run between £3,000 and £10,000 depending on the lease.
- Solicitor fees: it is recommended you hire a lawyer to oversee the drafting of the lease. A typical intervention will cost you around £5,000
- Commercial Agent: estate agents generally work on commission. Contact us to discuss our competitive prices. A good agent will save you a lot of money by negotiating the terms of the lease and free rent. It should be noted that the agents who market the goods defend the interests of their clients, namely the landlord or the seller.
- Deposit: the security deposit is often the equivalent of between 3 and 12 months rent.
- Fit out: the fit out of the restaurant is often the biggest expense. It will all depend on the condition of the premises but will be between approximately £1,000 and £2,000 per square metre.
As you can see, costs can quickly mount up, especially for the fit out where the sky’s the limit. However, the overall budget does not end there. Don’t confuse the initial costs and the overall budget. Opening a restaurant is a capital intensive project and it is very rare to be profitable from the first services. It is vital to anticipate this and to have the necessary cash to be able to hold out during the first few months following the opening.
Having a good understanding of the legal and tax framework is therefore essential for the success of your project. You will need to know precisely what amounts you will have to pay (VAT, employer’s contributions, other taxes, etc.) as well as on what dates.
London is a wonderful city, bustling 24/7. Opening an office, shop or restaurant in London is a fantastic experience. Finding premises is all part of it. Don’t ruin the adventure and get some help! That’s what we are here for. We are at your service and looking forward to seeing you soon.