Difference between second generation restaurant for sale held by Landlord and Paying for key money
- Jimmy Carey
- Oct 17, 2023
- 7 min read
Updated: 4 days ago
Last Updated: February 2026
Understanding Second Generation Restaurant Space and Key Money: What Every Atlanta Restaurant Buyer Must Know
If you are searching for a restaurant for sale in Atlanta, one of the most important distinctions you will encounter is the difference between a second generation restaurant space held directly by the landlord and a restaurant opportunity that requires paying key money to an existing tenant.
This distinction has a direct impact on:
Your upfront investment
Your lease terms
Your opening timeline
Your risk exposure
Your financing options
Your long-term resale value
Before committing to either option, it is essential to understand the full financial picture, and the article Restaurant Startup Costs: A Comprehensive Guide explains in detail the real costs involved in building out a restaurant space versus acquiring an existing second-generation location.
Understanding this decision is not just about saving money—it is about protecting your investment and positioning your restaurant for long-term success.
What Is a Second Generation Restaurant Space Held by the Landlord?
A second generation restaurant space held by the landlord is a location where the prior restaurant tenant has vacated and returned possession of the space to the landlord, who is now leasing the space directly to a new operator.
These spaces often include valuable infrastructure such as:
Commercial hood systems
Grease traps
Walk-in coolers
Gas lines
Floor drains
Electrical upgrades
However, equipment may or may not remain depending on the previous lease agreement and surrender conditions.
This decision closely aligns with the insights outlined in The Pros and Cons of Buying an Existing Restaurant: What to Consider, which explores the strategic advantages and potential risks associated with inheriting an existing restaurant infrastructure versus starting fresh.
Advantages of Second Generation Restaurant Space Held by Landlord
Greater Lease Negotiation Control
When dealing directly with the landlord, you may be able to negotiate:
Lower rent
Free rent periods
Tenant improvement allowances
Reduced personal guarantees
Favorable renewal options
This flexibility can significantly affect profitability and long-term value.
No Key Money Payment
One of the biggest advantages is that there is no key money payment required.
This preserves capital that can instead be invested into:
Equipment upgrades
Marketing
Staff training
Working capital
Ability to Customize Your Concept
You can design the restaurant to match your operational model instead of adapting to someone else’s layout.
This often results in improved efficiency and stronger brand positioning.
Considerations of Landlord-Controlled Second Generation Restaurant Space
Build-Out Investment May Be Required
Even with existing infrastructure, you may still need to invest in:
Equipment
Renovations
Permits
Compliance upgrades
These costs must be evaluated carefully.
Longer Opening Timeline
Opening timelines may range from 4 to 8 months depending on construction scope and permitting.
What Is Key Money in a Restaurant for Sale?
Key money is a payment made to an existing tenant in order to take over their restaurant lease and improvements.
This typically includes:
Equipment
Leasehold improvements
Existing infrastructure
Lease position
Many of these transactions are structured as asset sales, and What Is a Restaurant Asset Sale? Why It’s the Smartest Move for Restaurateurs in 2025 explains how leasehold improvements, equipment, and lease value are transferred in these transactions.
Advantages of Paying Key Money
Faster Opening Timeline
Because infrastructure already exists, opening timelines can be reduced dramatically.
In many cases, buyers can open within:
30 to 60 days
instead of several months.
Reduced Construction Risk
Construction delays and cost overruns are common in restaurant build-outs.
Key money eliminates much of that risk.
Potentially Favorable Lease Terms
Existing leases may include:
Below-market rent
Long lease terms
Valuable renewal options
A real-world example of how lease structure and physical assets influence value can be seen in Restaurant Asset Sale Atlanta Roswell, which demonstrates how second-generation infrastructure can significantly enhance buyer demand.
Considerations When Paying Key Money
Upfront Capital Requirement
Key money payments can range significantly depending on:
Location
Equipment quality
Lease terms
Market demand
Limited Lease Negotiation Ability
Lease terms are already established and may not be easily changed.
Layout Constraints
The existing design may not perfectly match your concept.
Why This Decision Directly Impacts Restaurant Value
Lease structure and infrastructure are major drivers of restaurant value.
Restaurants with:
Favorable lease terms
Quality infrastructure
Strong locations
are significantly more valuable.
Understanding buyer priorities is essential, and What Restaurant Buyers Look for in Atlanta highlights how lease terms, rent structure, and existing infrastructure directly impact a restaurant’s attractiveness and resale value.
Frequently Asked Questions About Second Generation Restaurant Space and Key Money in Atlanta
What is a second generation restaurant space?
A second generation restaurant space is a commercial property that was previously occupied by a restaurant and still contains essential infrastructure such as a commercial hood system, grease trap, gas lines, walk-in cooler, and plumbing. These spaces are highly desirable in Atlanta because they significantly reduce build-out costs, shorten opening timelines, and lower risk compared to building a restaurant from scratch.
What is key money in a restaurant lease?
Key money is a payment made by a new restaurant operator to an existing tenant in exchange for taking over the lease and acquiring the existing restaurant infrastructure, equipment, and leasehold improvements. In Atlanta, key money is very common in high-demand restaurant corridors such as Buckhead, Midtown, Sandy Springs, Alpharetta, and Decatur.
Is paying key money worth it when buying a restaurant in Atlanta?
Paying key money can be worth it if the location is strong, the lease terms are favorable, and the infrastructure is in good condition. In many cases, paying key money is significantly less expensive than building a new restaurant, which can cost hundreds of thousands of dollars and take many months to complete.
Is it cheaper to build a new restaurant or buy a second generation restaurant?
In most cases, acquiring a second generation restaurant is far less expensive than building a new restaurant. New restaurant build-outs in Atlanta often cost between $250,000 and $750,000 or more, while acquiring an existing restaurant space with infrastructure already in place can dramatically reduce those costs.
Can key money be negotiated?
Yes. Key money is almost always negotiable. The value depends on several factors, including the quality of the equipment, the remaining lease term, rent amount, location, and overall demand for the space. An experienced restaurant broker can help determine fair market value and negotiate favorable terms.
Do landlords have to approve key money transactions?
Yes. In nearly every case, the landlord must approve the lease assignment or new lease. The landlord will typically review the buyer’s financial qualifications, restaurant experience, and business plan before granting approval.
Why are second generation restaurant spaces so valuable in Atlanta?
Second generation restaurant spaces are valuable because they reduce startup costs, reduce opening timelines, and lower risk. Atlanta’s restaurant real estate market is highly competitive, and locations with existing infrastructure are in high demand among both independent operators and franchise groups.
Does paying key money increase the resale value of a restaurant?
Yes, it can. A restaurant with a favorable lease, quality infrastructure, and strong location is more attractive to future buyers. Lease terms and physical infrastructure are two of the most important factors that determine restaurant resale value.
Can SBA loans be used to finance key money?
Yes, in many cases SBA loans can be used to finance restaurant acquisitions that include key money, equipment, and leasehold improvements, provided the transaction meets SBA lending guidelines and the business qualifies based on cash flow and financial performance.
Should I work with a restaurant broker when negotiating key money or a lease?
Yes. Restaurant leases and asset sales are highly specialized. Working with an experienced restaurant broker helps protect your investment, ensures fair market value, and prevents costly mistakes that could impact your profitability and future resale value.
Why Working With a Specialized Restaurant Broker Matters
Restaurant lease structures and asset values are highly specialized.
Mistakes in these areas can cost buyers tens of thousands of dollars.
Working with an experienced restaurant broker provides critical protection, and Jimmy Carey Commercial Real Estate Team — Atlanta’s Leading Restaurant Broker explains how specialized restaurant brokerage expertise protects buyers, sellers, and landlords.
About Atlanta's Premier Restaurant Broker
Jimmy Carey Commercial Real Estate Team brings over 37 years of restaurant industry experience as a chef, multi-unit restaurant owner, and now Atlanta's Premier Restaurant Broker with Coldwell Banker Commercial Metro Brokers. Having owned and operated five successful restaurants including Jimmy'z Kitchen in Miami and Atlanta, Jimmy understands both sides of restaurant transactions from lived operational experience—not theory.
As a member of the International Business Brokers Association (IBBA) and the Georgia Association of Business Brokers (GABB), Jimmy maintains the highest professional standards in restaurant business brokerage while providing the honest guidance that comes from decades in the trenches.
For sellers who want to understand when the right time to exit actually is, read the best time to sell a restaurant in Atlanta.
Connect with Jimmy on Instagram, Facebook, LinkedIn, and YouTube for market insights, new listings, and real talk about restaurant ownership and transactions.
📍 Serving Atlanta, Sandy Springs, Roswell, Alpharetta, Marietta, Decatur, Buckhead, Midtown, Duluth, Cumming, Athens, Savannah and all of Metro Atlanta & Georgia
Get Your Confidential Restaurant Valuation
Discover what your restaurant is really worth in today's Atlanta market—with no obligations, no pressure, and complete confidentiality. Whether you're planning to sell a restaurant in 3 months or 3 years, understanding your true market value is the first step to a successful exit strategy.
Ready to Start the Conversation?
If you're ready to sell a restaurant and want to discuss your specific situation, timeline, and goals, let's talk. I provide honest, judgment-free guidance on valuation, timing, deal structure, and negotiation strategy—all designed to help Georgia restaurant owners exit on their terms.
Atlanta's Premier Restaurant Broker
Coldwell Banker Commercial Metro Brokers
📞 305-788-8207 | 678-320-4800
Comments