Restaurant Start-Ups: The Lease Part 2
.
11. Other Provisions
Among other provisions that can be included in a lease are those that require separate water and electricity metering, restrictions on noise levels, compliance with the American with Disabilities Act concerning the establishment’s accessibility to patrons with disabilities, and compliance with residential building covenants if the restaurant establishment is in a building with other residential or commercial tenants.
12. The Good Guy Guaranty
At the beginning of Part I of this article, we discussed how the corporate form is used to minimize the personal liability of owners.
For this reason, landlords almost always require a personal guaranty from at least one owner with the wherewithal to stand behind the corporation’s lease obligations. It is common practice that those guaranties, termed “Good Guy” guaranties, provide that upon a certain number of days’ notice of termination and conditioned upon the full payment of rent and compliance with the lease in all respects up through and including the date of vacatur that the guarantor would be released from being personally liable for outstanding rental obligations.
I want to add that most leases are for set terms and do not allow tenants to terminate the lease in advance, so that even if a guarantor meets the conditions for release from the guaranty, the restaurant corporation can still be held accountable for the difference between the rent to be paid under the lease and the rent paid up through the date of vacatur.
Good Guy Guarantees should be scrutinized so it is absolutely clear to the guarantors the circumstances under which they shall be relieved of personal liability for unpaid rents. For tenants, efforts should be explored to avoid having owners undertake personal guarantees, such as by offering to pay a larger security deposit which is paid all at once at the beginning of a lease term or amortized over time.
The Take Away:
For restaurants, being able to negotiate a reasonable lease is often the first step to success.
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. Do not assume that ambiguous language will be construed in the tenant’s favor; clarify with particularity the restaurant tenant’s rights and responsibilities.
Related articles:
Restaurant Start-Ups: The Lease Part 1
Decided on a Business Lease? 20 Lease Provisions
Read the Fine Print Before You Sign a Commercial Lease
Small Business Owners Need Advocates for Commercial Lease Negotiations
