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What Should You Consider When Negotiating a Restaurant Lease?

Author: Michael A. Faerber Date: 10/31/2013

Categories: Commercial Leasing, Corporate and Business Law

Owning and operating a restaurant business can be exciting, fast moving, exhausting and scary, all at the same time. You may have a certain vision of how you want your restaurant to look and run. However, before that vision can come to life, there are many issues during the lease negotiation to consider –details that can affect the shape and success of your business.

We suggest to our clients that you include us in the early discussions, along with the engineer, architect, contractor and insurance carrier to make certain you are covering all applicable areas of concern. Our goal is to avoid surprises during the construction process and afterwards when you are operating your business.

Here are some of the many things for you to consider if you are planning to open a new restaurant:

  • Liquor License – Often the sale of beer, wine and alcohol is very important to the bottom-line success of your restaurant. It is important to know if your proposed location will allow you to have such a license and if you otherwise meet the local jurisdiction requirements to obtain one. If a liquor license is important to the viability of your restaurant, you should consider making it a condition to the lease that the license be obtained.
  • Outdoor Seating – If the location and landlord allow you to have outdoor seating, you will want to have that discussion as part of your initial lease negotiations. Be sure you have the right to do this, and know what rules and requirements you will have to meet.
  • Percentage Rent – Depending upon the landlord and type of location, you may be asked by the landlord to pay a percentage of your gross sales to the landlord, in addition to your base rent payments. It is critical to understand (i) the calculation method the landlord will use to determine this amount, (ii) if the amount being requested is reasonable, and (iii) how you will have to comply with reporting requirements.
  • Build Out/Construction Issues – You will need to work closely with the landlord and your architect to plan the layout and construction of the premises. The landlord may have very specific timeline requirements for submitting plans and specifications and for the review and approval process. It is also important to determine how much the build out will cost and who is paying for it. In some cases, the landlord may provide you with an improvement allowance to assist with the build out costs. If you are getting a loan to cover some or all of your build out, your lender may have certain requirements as well requiring you to coordinate with your landlord. Working closely with the landlord and lender during the lease negotiation process can help avoid conflicts between the lender’s and landlord’s interests.
  • Exclusive Use – Depending on the type of location where your restaurant will be located (shopping center or mall, or an office building with retail space), and depending upon what type of restaurant you are opening, you may want to consider requesting from the landlord the exclusive right to have a restaurant selling the type of food that you will be offering.
  • Signage – If you have a specific logo for your signage that is important to you for your brand, you will want to get landlord approval of your signage early in the lease process. Landlords will often have signage requirements in shopping centers and malls. They may want consistency among signage between tenants that will not allow what you envisioned for your signage. You will also need to meet any signage requirements and restrictions of the local government.

These are just some examples of issues that can arise when looking at a location for your restaurant. Careful review and planning by you and your professionals will help make certain you are covering all of your bases. If you are considering opening a new restaurant and would like discuss leasing and other business aspects, please contact Michael Faerber at mfaerber@mcmillanmetro.com.