How to Understand Restaurant Lease Terms

A restaurant lease is slightly different from other commercial leases.

Restaurant leases contain clauses not typically present in other leases. When considering the execution of a commercial lease, all of the clauses must be given careful consideration. However, when taking a space for a bar or restaurant, there are certain lease clauses that warrant special attention. Following are some key clauses that are a crucial part of every restaurant/bar lease and, if negotiated properly, will allow the restaurateur/bar owner to increase the value of his establishment even prior to its opening and to operate with a greater peace of mind.

Instructions

1. Find the lease duration. Generally, the longer the duration of the lease the better, especially if given the ability to assign the lease with a minimum of Landlord intervention. Do your homework to determine the fair market rental value for the premise and don't simply rely on your broker's advice.

2. Look for an assignment clause. Always attempt to retain the ability to assign the lease to a third party (e.g. in the event you want to, or are forced to sell your restaurant). The Landlord will insist that he must give his prior written consent for any assignment to be valid, but you must in turn, insist that his consent can not be unreasonably withheld, delayed or conditioned. Too many restaurateurs do not realize the importance of having the ability to assign their lease until they are at the point where they have decided to sell their restaurant. At that point, the sale of the restaurant will be thwarted because they will not have the ability to offer the lease to the potential purchaser and the Tenant will be forced to just walk away from the premise with nothing.

3. Insert an "escape clause" in your lease in the event that your liquor license application is rejected by the NYSLA If you intend to apply for a liquor license for your premise. A fair escape clause would be that the tenant gets to void the lease in the event their NYSLA application is rejected but are required to pay all rent incurred (included any abated months) to the date of rejection. The personal guaranty, if any, must also void as of that date.

4. Attempt to get the premise rent-free until the latter of the day Tenant opens the establishment to the public, or the date Tenant receives its liquor license from the NYSLA. Most landlords will agree to this request with some limitation or outside rent commencement date depending on the present demand for the premise and the caliber of the proposed restaurant tenant.

Tips & Warnings

• A commercial lease negotiation and review should be handled by a qualified attorney.

References

• All Food Business: Leasing Tips For a Commercial Building