Buying a Restaurant in Vancouver | Complete Buyer’s Guide

Buying a restaurant in Vancouver involves much more than finding the right location. Buyers need to understand restaurant leases, financing, due diligence, commercial kitchens, equipment, liquor licensing and the purchase process. This guide answers the most common questions I receive from buyers looking for restaurants for sale in Vancouver and throughout Metro Vancouver.

What should I check before buying a restaurant in Vancouver?

Before buying a restaurant, you should review the lease, monthly rent, remaining lease term, renewal options, demolition clause, financial information, equipment, permits, liquor licence, kitchen ventilation and any restrictions on the type of food that can be prepared.

The lease is particularly important because much of the value of a restaurant can depend on its location and the ability of the buyer to continue operating from that location for a reasonable period of time.

You should also confirm that your intended restaurant concept and menu will be permitted by the landlord and can operate with the existing kitchen and ventilation system.

How much does it cost to buy a restaurant in Vancouver?

Restaurant prices vary significantly depending on the location, size, lease, kitchen equipment, condition of the premises and profitability of the business.

As a general guide, based on the Vancouver restaurant market:
• Coffee shops may sell from approximately $75,000 to $250,000.
• Pizza restaurants may sell from approximately $125,000 to $400,000.
• Full-service restaurants with commercial kitchens may sell from approximately $175,000 to $750,000 or more.

These are general ranges only. Restaurants with strong sales, profitable operations, valuable locations, favourable leases or extensively equipped commercial kitchens can sell for considerably more.

How much of a down payment do I need to buy a restaurant?

The amount of cash required depends on the purchase price, the restaurant's financial performance, the lender, your credit history, restaurant or business experience and the assets available as security.

As a general guideline for business acquisitions, buyers may need approximately 20% to 30% or more of the purchase price from their own resources. Restaurant financing can be more difficult when there are limited financial statements or when much of the purchase price relates to goodwill rather than equipment.

Buyers who own a home may also have access to a home equity line of credit or other financing, subject to lender approval.

Can I finance the purchase of a restaurant?

Yes. Restaurant purchases can sometimes be financed through a chartered bank, BDC, a credit union, a mortgage or commercial finance broker, or a combination of financing sources.

Approval generally depends on your credit, available down payment, business or restaurant experience, the financial performance of the restaurant and the lender's assessment of the transaction.

Some restaurant purchases are easier to finance than others. A profitable operating business with good financial records will generally provide a lender with more information to evaluate than an asset sale without established earnings.

If you are considering financing a restaurant purchase, contact me to discuss your options. I can also provide referrals to banks and financing professionals who have experience with business and restaurant financing.

What is due diligence when buying a restaurant?

Due diligence is the period when the buyer verifies the important information about the restaurant before completing the purchase.

This can include reviewing financial information and sales records, the restaurant lease, equipment and fixtures, permits and licences, kitchen ventilation and fire suppression systems, liquor licensing, renovation requirements, municipal requirements, financing and landlord approval.

If you intend to renovate or make structural changes, the due diligence period should also be used to determine whether the municipality and landlord will permit the proposed work.

Due diligence is one of the most important stages of purchasing a restaurant and should not be rushed.

What is a restaurant lease assignment?

A lease assignment occurs when the existing tenant assigns its interest in the restaurant lease to the buyer, subject to the terms of the lease and the landlord's approval.

The buyer generally takes over the existing lease and becomes responsible for its obligations. Depending on the circumstances and the landlord, it may also be possible to negotiate changes such as additional renewal options as part of the assignment process.

Can a landlord refuse a restaurant lease assignment?

Yes. A landlord may be able to refuse an assignment depending on the wording of the lease and the circumstances of the proposed buyer.

The landlord will commonly review the buyer's financial strength, credit, business experience and proposed restaurant concept. Because every lease is different, the assignment provisions should be reviewed carefully before a buyer removes conditions from an offer.

What is a demolition or redevelopment clause?

A demolition or redevelopment clause gives a landlord certain rights to terminate a lease if the property is going to be demolished or redeveloped, subject to the specific wording and notice requirements contained in the lease.

This can be extremely important when buying a restaurant because the value of the business may depend heavily on its location.

Not all demolition clauses are the same. Buyers should understand when the clause can be exercised, how much notice is required and whether the lease provides any compensation or other protection to the tenant.

A restaurant advertised as having a "No Demo Clause" generally means the lease does not contain a landlord demolition provision during the applicable lease term, but the actual lease wording should always be reviewed.

What conditions should I include when making an offer to buy a restaurant?

The conditions in an offer to buy a restaurant should be tied directly to your due diligence and the specific restaurant you are purchasing. Common conditions may include reviewing the financial information, lease and lease assignment, landlord approval, financing, equipment, licences and other important business information. I can help you determine which conditions should be included based on the restaurant and your specific requirements.

What is an asset sale when buying a restaurant?

In an asset sale, the buyer purchases specified assets of the restaurant rather than purchasing the shares of the company that owns the business.

Depending on the agreement, the assets can include restaurant equipment, furniture, fixtures, leasehold improvements, goodwill, trade names, telephone numbers, websites and other business assets.

In many restaurant asset sales, buyers intend to introduce their own concept, restaurant name and menu. The purchase agreement should clearly identify exactly which assets are included and excluded.

What is the difference between an asset sale and a share sale?

With an asset sale, the buyer typically purchases selected assets from the company that owns the restaurant.

With a share sale, the buyer purchases the shares of the corporation that owns and operates the restaurant. The corporation continues to own its assets and remains responsible for its obligations.

A share purchase therefore requires careful legal, accounting and financial due diligence because the buyer is acquiring ownership of the corporation, including its existing obligations and potential liabilities.

Buyers should obtain independent legal and accounting advice when deciding how a restaurant acquisition should be structured.

Can I change the restaurant concept after buying the business?

In many cases, yes, but this should be confirmed before purchasing the restaurant.

The lease may restrict the permitted use of the premises. A landlord may also have restrictions preventing two similar restaurant concepts from operating within the same shopping centre or property.

Franchise agreements may create additional restrictions, and your proposed menu must also be compatible with the existing kitchen, ventilation, municipal approvals and other regulatory requirements.

A buyer should therefore confirm the proposed concept before removing conditions from the purchase agreement.

What should I look for in a restaurant lease?

Some of the most important items include current base rent, additional rent and operating costs, GST, remaining lease term, renewal options, rent increases, permitted use, assignment provisions, demolition or redevelopment clauses, personal guarantees, repair and maintenance obligations, HVAC responsibilities, insurance requirements, signage rights, exclusivity provisions and restrictions on restaurant concepts or menus.

The lease is one of the most important documents when purchasing a restaurant because even a successful restaurant can become difficult to operate if the lease terms are unfavourable.

What is a Type 1 commercial kitchen hood?

A Type 1 commercial kitchen hood is designed for cooking equipment that produces grease-laden vapours and smoke.

It is commonly required for equipment such as deep fryers, grills, ranges and other grease-producing cooking equipment. A Type 2 hood is generally intended for heat, steam and condensation rather than grease-producing cooking.

Buyers should never assume that an existing ventilation system will accommodate their proposed menu. The hood, fire suppression system, equipment and proposed cooking methods should be reviewed before completing the purchase.

How important is a liquor licence when buying a restaurant?

A liquor licence can be an important part of the value and operation of a restaurant.

If the restaurant has a liquor licence, the buyer should confirm the type of licence, licensed capacity, approved service areas and hours of liquor service.

A change in ownership generally requires the appropriate liquor licensing process and approval. Buyers should include sufficient time in the purchase process to complete any required applications.

Food-service operating permits are separate from liquor licensing and should also be addressed when ownership changes.

What financial information should I review before buying a restaurant?

Whenever available, buyers should review several years of financial information rather than relying on a single sales number.

Documents may include financial statements, corporate tax returns, GST returns, point-of-sale sales reports, bank or merchant processing records, payroll information, food and beverage costs, delivery-app sales, rent and operating expenses, utility expenses, equipment leases and other recurring operating expenses.

The objective is to determine whether the reported sales and expenses can be verified and whether the restaurant can generate sufficient cash flow under the buyer's ownership.

An accountant should be consulted when reviewing the financial performance of a business acquisition.

How long does it normally take to buy a restaurant?

A restaurant purchase commonly takes approximately six to eight weeks from acceptance of the offer to completion and possession.

Transactions involving bank financing, complicated lease assignments, liquor licensing, franchise approval or extensive due diligence may take longer.

The exact timeline depends heavily on how quickly the buyer, seller, landlord, lender and other parties provide the required information and approvals.

Why are some restaurant listings confidential?

Many restaurant owners do not want employees, customers, suppliers or competitors to know that the business is for sale.

Public knowledge of a sale can create uncertainty among employees and customers and potentially affect the operation of the business.

For this reason, confidential restaurant listings may provide only general information about the location and business until a prospective buyer has been qualified and, when required, signed a confidentiality agreement.

How do I determine whether the restaurant rent is reasonable?

Restaurant rents vary considerably by location, building, size and lease structure.

The important question is not simply whether the rent appears high or low. A buyer should determine whether the restaurant can generate sufficient sales and gross profit to support the occupancy costs and still produce an acceptable return.

You should review the total occupancy cost, including base rent, additional rent, property taxes or operating costs where applicable, and GST. The remaining lease term and future rent increases should also be considered.

What equipment should be inspected before purchasing a restaurant?

Major restaurant equipment should be inspected before completing the purchase.

Important items include walk-in coolers and freezers, refrigerators and prep coolers, HVAC systems, exhaust hoods, fire suppression systems, ovens and ranges, deep fryers, dishwashers, hot-water systems, ice machines, grease traps, electrical and gas equipment.

Refrigeration problems can be particularly expensive. Buyers should test the equipment and consider having important systems inspected by qualified technicians before completing the purchase.

Should I use a restaurant broker when buying a restaurant in Vancouver?

An experienced restaurant broker can help a buyer identify suitable restaurants, understand asking prices and lease terms, prepare and negotiate an offer, coordinate the lease assignment process and identify issues that should be investigated during due diligence.

Restaurant transactions involve a combination of real estate, leases, equipment, licensing, financing and business considerations that are different from many other business purchases.

My role is to guide my clients through that process, coordinate with the parties involved in the transaction and use my restaurant and real estate experience to help buyers make informed decisions.

Buyers should also use appropriate independent professionals, including lawyers, accountants, lenders and qualified inspectors or technicians, when their expertise is required.

Still Have Questions About Buying a Restaurant?

If you have questions about buying a restaurant in Vancouver or anywhere in Metro Vancouver, I am available by phone or text. Whether you have a question about a restaurant listing, lease, financing, commercial kitchen, or the buying process, feel free to contact me.

Call or text me and I will be happy to help.