Restaurant Leasing Toolkit (National and Select States)

Practical Law Toolkit w-021-4778 (Approx. 27 pages)

Restaurant Leasing Toolkit (National and Select States)

by Practical Law Real Estate

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Resources to assist both landlords and tenants in understanding, drafting, and effectively negotiating restaurant leases. This Restaurant Leasing Toolkit includes Practice Notes and commonly used Standard Document forms. These resources provide analysis of common restaurant leasing concerns.

Restaurant leases are negotiated agreements that vary in length and complexity depending on the specific needs of the tenant and the landlord. A restaurant lease is typically a lease for all or part of a building. Although restaurant leases generally involve similar considerations as other commercial leases, they can differ in some ways, such as:

The leases are often triple net leases where the tenant, in addition to base rent and percentage rent, can be obligated to pay its share of:
- real estate taxes;
- insurance; and
- common area maintenance costs.
The premises may need substantial construction to meet the tenant's specific needs.
There is often increased wear and tear on the premises due to the tenant's use.
The applicability of the requirements of the Americans with Disabilities Act of 1990, as amended by the Americans with Disabilities Act Amendment Act of 2008 (ADA), including providing reasonable accommodations to those with disabilities.
Additional health and safety concerns, including:
- cleaning grease traps;
- fire hazards; and
- extermination requirements.
Health code issues.
Building code issues, including:
- the location and type of fixtures and equipment;
- signage;
- outdoor seating;
- on-site advertising; and
- parking.
If the tenant intends to serve alcohol:
- liquor license requirements; and
- additional insurance requirements including liquor liability coverage.
The potential material impact the tenant's use of the premises may have on the owners and tenants of neighboring properties because of the tenant's:
- heavy traffic;
- odors;
- trash;
- parking requirements; and
- additional noise, including music.

This Restaurant Leasing Toolkit provides resources designed to assist landlords and tenants entering a restaurant lease to:

Negotiate the restaurant lease.
Obtain appropriate protections.

Restaurant leases are hybrid agreements that are governed by:

A combination of real estate and contract law.
The state and local laws where the real property is located.

The resources listed can be used in a standard lease form, but must be modified to address the unique considerations that arise in leasing a space to a restaurant tenant.

Most restaurant leases are long term commitments, often five years or more, with ongoing obligations and risks. When negotiating a restaurant lease, restaurant tenants should:

Identify short and long term business goals. The clearer the business goals, the more likely the finalized restaurant lease will be an effective and useful tool for the tenant and its business vision. For example, if the restaurant tenant believes it will grow in the near future, the tenant should negotiate for additional space options during the letter of intent and lease negotiation stages.
Effectively negotiate the business terms and lease provisions. The restaurant tenant should understand the specific issues and lease provisions that affect the tenant's ongoing obligations.
Obtain appropriate protections. The restaurant tenant should consider the time and money it invests in the space and whether it should negotiate certain protections to ensure the lease is not prematurely terminated. For example, in many instances a landlord's lender has priority over a tenant's lease and may be able to terminate the tenant's lease if there is a foreclosure action. The tenant may want to obtain a subordination, non-disturbance, and attornment agreement from the landlord's lender to ensure that the landlord's potential future default under its loan, and the subsequent foreclosure by the landlord's lender, would not permit the lender to prematurely terminate the lease.

The continuing costs of a restaurant lease can affect a restaurant tenant's bottom line. A restaurant tenant planning to lease restaurant space should use the general practice tips and negotiating techniques discussed in the resources in this Restaurant Leasing Toolkit to better assess and allocate the costs and other risks associated with a restaurant lease.

This Restaurant Leasing Toolkit includes jurisdictionally neutral restaurant leasing resources. These resources include forms and discuss issues that are useful and relevant to landlords and tenants in every state.

This Restaurant Leasing Toolkit contains continuously maintained Practice Notes, Standard Documents, Standard Clauses, State Q&As, and Checklists to help landlords and tenants manage the restaurant leasing process.