Restaurant Start-Ups: The Lease Part 1

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4. Transfers and Sublets[2]

Leases will almost always contain a provision requiring the tenant to obtain permission from the landlord to sublease or assign a lease to a third party.

Sometimes, leases will specify that the landlord shall be entitled to a percentage of the rents paid to the tenant by subtenants or assignors. Significantly, in many leases, the term “assignment” is defined broadly to include an assignment pursuant to a sale of a restaurant to a third party.

These clauses should be reviewed in detail insofar as some leases reviewed by the writer have included provisions entitling the landlord to receive a fee up to 75% of the sales price on a transfer of a restaurant.

These provisions are, generally, negotiable in terms of the portion of the sales price to which the landlord may be entitled. The point, however, is that restauranteurs interested in possibly selling their establishments need to watch out for such transfer fee provisions. 

5. Access to Adjacent Properties

It is not uncommon that building out a premises, so that the space can be adapted to restaurant use, can involve major reconstruction, which can also involve the need to access the premises of adjacent tenants or landholders.

Unless the lease expressly imposes the obligation on the landlord to ensure access to adjacent properties, the restaurant can end up in a situation where the ability to complete reconstruction depends on the cooperation of a possibly unsympathetic third party. Restauranteurs should be wise to this situation and include language in the lease requiring the landlord to exercise its right of entry onto the adjacent premises should it be required to facilitate the completion of a build-out. 

In part two we’ll cover seven more lease provisions.