I have previously commented about the similarity in service between a restaurant and law firm (see prior blog). One area where restaurants differ from other businesses is the issues presented in a retail lease.

A restaurant lease involves unique issues which must/should be dealt with, some more monetarily significant than others. But don’t underestimate the annoyance factor. If any of these issues are not dealt with appropriately, you can bet someone will be more than a little annoyed.

  1. Impact Fees – Because restaurants are typically big water consumers, new build locations may charge a significant tap-in fee. In some cases, there may be various impact fees. Depending on leverage, a restaurant may be able to get the landlord to pay this as part of its development costs. But even if the landlord will not pay the fee, the restaurant needs to know the exact amount of the fee so that it can correctly prepare its budget.
  1. Trash Removal – There are many different ways a landlord can charge for trash removal. Does the restaurant have its own dedicated dumpster? Does the landlord mark up the bill? Is there a choice on who to use as the hauler? I have heard of landlords going to a weight-based system where a tenant gets billed for actual disposal, but have not actually seen one in place. In any event, these details need to be determined before the lease is signed.
  1. Grease Removal – Similar to trash removal, the tenant needs to understand whether it will have a shared system or its own dedicated system, and who is responsible to install it.
  1. Liquor License – The availability of liquor licenses can vary greatly by municipality. A restaurant serving alcohol may need a contingency, but needs to fully understand the availability, time to obtain, cost and other terms prior to lease execution.
  1. Operating Covenant – Many shopping center leases require the tenant to be open during “normal shopping center hours”. However, a restaurant may have its own unique opening hours. For instance, a shopping center may open at 10:00 AM but the restaurant does not open until 11:30 AM. Also, a restaurant tenant should not be penalized if the GM decides to close early one night, or if he or she oversleeps and opens late one day. Additionally, a restaurant may not want to be open during special extended holiday hours. These things happen – the lease should address them.
  1. Opening – Most leases provide that the tenant will begin paying rent when the restaurant opens. Many restaurants have a “pre-opening” where they do test runs and invite family and friends. The lease should be clear that such a pre-opening does not trigger rent commencement.
  1. Patios – The lease should specifically address maintenance of any patio, allow for background music, and specify that the tenant does not pay extra rent for the patio. I have seen instances where a landlord tries to terminate a tenant’s use of a patio without terminating the lease if the tenant fails to maintain the patio. The tenant should never agree to this. A landlord should not be able to take away certain rights while requiring the tenant to continue to be liable for all obligations.
  1. Use Clause – A successful restaurant changes its menu over time to keep it fresh. The lease must allow the tenant to evolve over time so long as it’s not breaching another tenant’s exclusive.
  1. Odor – A restaurant is going to give off some odor (hopefully a pleasant one!). The lease can not prohibit any odor whatsoever. The tenant should be clear from the beginning on whether a scrubber will be required. This can be a large expense which, if unbudgeted, could be a very unpleasant surprise.
  1. Pest Control – A landlord will typically be responsible in a shopping center environment. But the particularities of the site and other tenants may require a tenant to participate or even be responsible. This needs to be clearly spelled out in the lease.
  1. Exclusives – A restaurant is one area where an exclusive is particularly necessary and appropriate. The tenant should get liquidated damages and, if it agrees to a rogue tenant exception, should eliminate any fish or cut bait clause.
  1. Standard Clauses – Many leases contain standard clauses that simply do not apply and should be deleted. For instance, the clause that says a tenant should do nothing “immoral” in the space – is the sale of alcohol immoral? Or what about the clause that says the tenant is responsible for any increased insurance cost due its use? Insurance for a restaurant will undoubtedly cost more than for a greeting card store, but does that mean a restaurant tenant pays more even though it is only conducting its permitted use?

I used to say that before anyone should be allowed to eat at a restaurant, they should be required to work at one. The same thing may be true for leases: before anyone should be allowed to negotiate a restaurant lease, they should be required to work in a restaurant. If you buy me lunch, I will be happy to elaborate on any of these issues, as long as I get to pick the restaurant.