Food for Thought: Serving Up Unique Concerns for Restaurant Leases

Many aspects of commercial leasing are complex, but restaurant leases are a unique species of lease. Counsel to restaurants must be cognizant of operational and logistical issues posed by these hospitality businesses, and be prepared to address these key issues to protect the restaurant.  Here are some of the most distinctive issues to be aware of when representing a restaurant tenant:

CONSTRUCTION ISSUES

Restaurant construction is different from other tenants’ fit-out work.  It involves several moving parts, all of which come together to facilitate the restaurant’s successful operation. These include utilities, heating, ventilation, and air conditioning, managing odors, grease traps, hot water, and fire suppression systems.  While counsel need not have the knowledge of a contractor or architect, one must understand the importance of the size of HVAC systems, design of fire suppression and sprinkler systems, the capacity and location of electrical conduit and electrical service, and sanitary and sewer lines and gas lines.  For example, grease traps are imperative for restaurants, and it is important to determine (i) whether a grease trap is separate and external, or shared with other tenants, (ii) if shared, how maintenance responsibility and cost will be allocated among the shared users; and (iii) whether the grease trap’s location is convenient for operations.

Mitigation of cooking odors is another key issue, especially in a mixed-use development, shopping center, or an urban residential neighborhood.  Some landlords and municipalities require expensive odor control systems, and negotiation is important in determining the size and scope of such measures, especially given the subjective perception of odors generally.  It may also be helpful to include an objective standard of negative pressure for odor control.  Noise mitigation is likewise an issue as to which landlords may be sensitive. Restaurants draw crowds of people who are out to enjoy themselves, which leads to loud voices, music, and other noise that emanates from the restaurant in a way that may affect other abutters and neighbors, especially residences or hotels.

OPERATIONAL ISSUES

1. Hours of Operation: All businesses are sensitive to their hours or operation, but it is particularly important for restaurants to understand the impacts that may come with later hours, which often cause landlords concern (especially if the restaurant serves alcohol). If the restaurant has outdoor seating or a patio area, are those hours the same as for the interior space?  Some liquor licenses or municipal regulations may also restrict operations, so it is important to understand and comply with the requirements and rules of governing bodies.
2. Deliveries: Restaurants receive multiple deliveries daily, often greater than other types of businesses.  The logistics of delivering food to the restaurant are critically important. Sometimes landlords desire to limit the hours during which deliveries may be made or the loading docks (if any) that may be used.  Counsel should know how deliveries will be made and determine whether any restrictions on same will be troublesome to the restaurant’s operations.
3. Trash: Restaurants generate a substantial amount of trash, both wet and dry, food and nonfood. The location and adequacy of trash storage as well as the frequency of removal are key issues to specify in the lease.  Some landlords also require a cold storage area for food waste; and of course care should be taken to avoid vermin infestations.  Where will the tenant need to take its trash?  If the common trash room is far from the kitchen, that may pose problems for restaurant staff.
4. Parking: Vehicle parking is an issue for all tenants, but it is often magnified for restaurants.  Counsel should understand where the restaurant’s patrons are expected to park, and if desired seek to negotiate designated takeout parking spaces for the restaurant. If there is to be valet parking, or if a development designates certain areas as approved for ride share drop-off and pick-up and not others, counsel should understand whether those services and areas pose a business risk for the client.

EXCLUSIVE ISSUES

Many types of retail businesses seek exclusives in leases, but restaurants are particularly invested in ensuring that landlords do not lease other space to a competitor restaurant.  If the development contains a hotel, the restaurant lease should contain an exclusive which prevents the hotel from operating a similar restaurant.

TIMING ISSUES

If the restaurant is located in a mixed-use project or shopping center, or otherwise not on its own parcel, the restaurant will want to negotiate the ability to determine when construction occurs and when it is obligated to open for business.  Timing of construction can be a big risk, as delays and interruptions are expensive and set back the opening. Aside from construction timing, opening requirements may be important, especially in light of whether other tenants in the project are open and operating.  Restaurant counsel may seek an opening co-tenancy requirement such that the restaurant will not be obligated to open until the major tenant or a substantial portion of the development is also open.

In summary, restaurant leases are more complicated than other retail leasing; and restaurant counsel should be aware of these unique business issues and strive to fully understand the details of its client’s business in order to set the restaurant on a successful path.