A commercial lease is the largest financial commitment most restaurant owners ever make — and most sign one without fully understanding what they are agreeing to. Here are the seven mistakes we see repeatedly, and how to avoid every single one.
60%
Of restaurants that close cite lease terms as a factor
$150K
Average restaurant fit-out cost in Australia
5 years
Typical minimum commercial restaurant lease
Mistake 1: Signing without a market study
Most restaurant owners visit a location once, feel excited and sign. A real market study takes 5–7 days: competitor mapping, foot traffic at multiple times of day, demographic analysis, talking to neighbouring business owners, checking council development applications for upcoming changes to the streetscape.
The one question to answer before signing
Can this location support a restaurant doing the revenue I need to be profitable? If you cannot answer that with data, you are guessing with a 5-year commitment.
Mistake 2: Ignoring the rent-to-revenue ratio
Restaurant rent above 15% of monthly revenue is a serious warning sign. Above 20% is, in most cases, fatal. This is the most important number in any location analysis and the one most founders underweight because they are distracted by the excitement of the site.
A restaurant site needs to be evaluated at its busiest and quietest times before you commit.
Mistake 3: Forgetting fit-out costs in the total commitment
A site without existing commercial kitchen infrastructure — extraction, 3-phase power, grease traps, industrial plumbing — can add $80,000 to $200,000 in fit-out costs. When comparing two sites, the one with lower rent but no infrastructure may be more expensive overall when you model the total 5-year cost.
Mistake 4: Not testing evening trade separately
A street that hums at lunch can be dead at 7:30pm — and restaurants rely on dinner for profitability. Visit on a Friday evening. Are other restaurants full? Are groups of people looking for somewhere to eat? 15 minutes of observation tells you more about dinner viability than any dataset.
Mistake 5: Underestimating seasonal risk
Tourist areas, beach suburbs and event precincts can trade brilliantly for eight months and die for four. If your financial model assumes consistent monthly revenue, a quiet stretch will destroy your cash position. Seasonal locations require more working capital and a model that explicitly plans for the low period.
Mistake 6: Ignoring parking for dinner service
Dinner diners drive. A restaurant with no parking within 400m will lose a real percentage of potential customers — especially families and anyone over 40. Public transport helps for lunch and younger demographics. But for dinner service, parking proximity is a direct driver of cover count.
Mistake 7: Not getting a solicitor to review the lease
A commercial tenancy solicitor charges $500–$1,500 to review a lease. Given that you are about to commit to a 5-year contract, this is not optional. Rent review clauses, make-good obligations, permitted use definitions and personal guarantee scope can cost you tens of thousands of dollars if you do not understand what you are signing.
What your solicitor must check
Rent review mechanism (CPI vs market). Make-good obligation (what condition do you leave the site?). Permitted use (does it cover your full concept?). Personal guarantee scope. Option to renew terms. Assignment rights — can you sell the business with the lease?
Check if your location is worth it
See competition, demand, and risk before committing to a lease.
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