Chapter 6 — Discussion Guide

1. "Rent is fixed; the denominator is a hope." What other numbers in a business plan have this structure? What to listen for: students should generalize from occupancy to any ratio whose numerator is contractual and whose denominator is forecast — debt service coverage, labor as a percentage of sales, marketing spend as a percentage of sales, even prime cost when it is stated as a target rather than measured. Strong answers notice that the fixed-numerator ratios are exactly the ones lenders test you against, and that this is not a coincidence. Push toward the practical instruction: compute every such ratio at three revenue levels, always, and put all three in the plan.

2. Bellwether's partners won on escalation, percentage rent, abatement, CAM, use, assignment, and the exclusive — and lost on the good-guy clause, co-tenancy, and additional tenant-improvement money. Did they negotiate well? What to listen for: the tension between "they won most of the points" and "they lost the ones that matter in the downside." Good answers observe that the wins are all upside and ordinary-course terms while the losses are all catastrophe terms — which is exactly the pattern you would expect when a landlord is protecting recourse. Push on whether they should have traded a win for the good-guy clause: would you give back the percentage-rent strike, worth \$69,200 over three years on plan, for a limitation on a \$1.03 million personal exposure? There is no clean answer, and the argument is the point.

3. Information found in due diligence "does not always buy you money — it always buys you choices." Is that consolation or substance? What to listen for: students often read the hood discovery as a defeat, because the landlord held firm. Push them to enumerate the choices the partners actually had at that moment: walk away with the deposit back, re-price the mechanical scope before signing, demand more TI, extend due diligence, or proceed knowingly. Then ask what the same information would have been worth in week three of construction — the answer is that it would have bought nothing except a change order. This is the chapter's argument for spending a few hundred dollars on a mechanical contractor.

4. Should a first-time operator ever sign an unlimited personal guarantee? What to listen for: run this one late; it gets uncomfortable and it should. The honest answer is that most of them have no alternative, which surfaces the real issue: access to capital. A founder with a house, savings, or a wealthy co-signer can sign a guarantee and sleep; a line cook with fourteen years of experience and no assets is being asked to risk a different proportion of their life for the same document. Connect it back to Chapter 1's closing discussion about who gets to open a restaurant. Watch for students who dismiss the risk because "the business will work" — that is precisely the belief the guarantee is priced against.

5. The chapter says everything is negotiable and almost nobody negotiates. Why not? What to listen for: fear of losing the space, the lease looking like a form, not knowing what to ask for, and the broker's incentive structure. The most valuable part of this discussion is the last one, because students are reluctant to name a conflict of interest in someone who has been generous with their time. Ask directly: "Who pays the listing broker, and when?" Then ask what a tenant representative changes and what it does not. Good answers land on the general principle — in any transaction, find out who is paid by whom, and ask early rather than late.

6. Case Study 2's partners had a 4.6% contingency because that was what was left after they built the budget backward from the money they had raised. What should they have done? What to listen for: the uncomfortable answer, which students avoid, is raise more or build less — including the possibility of not doing the project. Push past "they should have been more careful." Force them to price each option: a smaller space, cheaper finishes, a phased build, delayed opening, more equity, more debt, a different site. Every one has a cost, and naming the costs is the exercise. The transferable principle is that a contingency computed backward from available funds is not a contingency; it is a hope with a number next to it.

7. If you could negotiate only five clauses in a restaurant lease, which five and why? What to listen for: run this as a closing synthesis, ideally with the room voting. Defensible sets usually include rent commencement, assignment, the guaranty limitation, escalation, and either the CAM cap or the relocation clause. What matters is not the list but the reasoning — students should be weighing dollar magnitude against probability against reversibility. Ask the follow-up that separates good answers: "Which of your five costs the landlord nothing?" Rent commencement and the good-guy clause both cost a landlord no current income, which is why they are the highest-value asks and why it is remarkable how rarely they are made.