“For restaurants, being able to negotiate a reasonable lease is often the first step to success…”
Edior’s note this is part two of a two part aticle. The first part : Restaurant Start-Ups: The Lease Part 1
The best way of understanding the import of lease provisions is to spin out scenarios and see how the lease addresses them. Whom does the lease afford the leverage—the landlord or the tenant? This is a question that should be considered as part of any lease evaluation.”
In Part II of this article on restaurant leases, we will consider seven other provisions that prospective restauranteurs should consider:
6. Change of Control Provisions
Many leases contain change of control provisions which provide that if a controlling interest in a restaurant corporation were to be sold to a third party, that the landlord’s consent to such sale would be required.
The purpose behind this type of provision is to ensure that new owners have the competence and financial wherewithal to manage the restaurant enterprise.
7. Permitting and Build-Outs
Before a restaurant establishment can begin building out the premises to adapt it for restaurant use, it will often be required to obtain a host of permits from local community boards, which can take time.
The restaurant needs to include in any lease a provision that before the lease formally comes into force that the restaurant should have a reasonable opportunity to obtain the necessary permits and be afforded a reasonable time to complete the build-out.
Included in any such provision should be language that allows the lease commencement date to be put off should permitting or the completion of a build out be delayed for reasons beyond the control of the restaurant applicant.
Should undue delays occur with permitting or a permit application is denied, the restaurant enterprise should be able to walk away from the lease.
In the event the landlord is responsible for the delay, the restaurant should try to include a “walk away” provision coupled with an obligation that the landlord shall pay the restaurant’s fees and expenses associated with the restaurant’s efforts to obtain permits.
8. Auxiliary Office Space
All the space allocated under a lease is, generally, assumed to be used in connection with serving patrons.
If the restaurant is going to need separate office space to be able to engage in the administration of the enterprise, however, this use should be referenced in the lease, consistent with the “Use” clause.
9. General Restrictions
Where a restaurant is to be located in a residential area, or adjacent to or below residential units, it is important to clarify what, if any, restrictions, may exist with regard to using outdoor space, including requirements regarding noise levels, and ventilation requirements to avoid noxious smells or the emission of fumes.
Obligations concerning the extermination of vermin, the cleaning of grease traps, and garbage disposal should also be clarified, so that it is clear the restaurant’s level of responsibility.
10. Health and Safety Provisions
In addition to General Restrictions, leases also include provisions concerning the restaurant’s obligation to meet Health Department Code Requirements, Fire Code Requirements, and Smoke and Fire Detection Systems, violations of which could constitute a lease violation.
Next page- 11. Other Provisions, 12. The Good Guy Guaranty and the Takeaway