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Jennifer Ioli Connelly and Richard Heller
Many aspects of commercial leasing are complex, but restaurant leases are a unique species of lease. Counsel to restaurants must be cognizant of operational
Construction Issues: Restaurant construction is different from other
tenants’ fit-out work. It involves several moving parts, all of which
come together to facilitate the restaurant’s successful operation. These
include utilities, heating, ventilation, and air conditioning, managing odors,
grease traps, hot water, and fire suppression systems. While counsel need
not have the knowledge of a contractor or architect, one must understand the
importance of the size of HVAC systems, design of fire suppression and
sprinkler systems, the capacity and location of electrical conduit and
electrical service, and sanitary and sewer lines and gas lines. For
example, grease traps are imperative for restaurants, and it is important to
determine (i) whether a grease trap is separate and external, or shared with
other tenants, (ii) if shared, how maintenance responsibility and cost will be
allocated among the shared users; and (iii) whether the grease trap’s location
is convenient for operations.
Mitigation of cooking odors is another key issue,
especially in a mixed-use development, shopping center, or an urban residential
neighborhood. Some landlords and municipalities require expensive odor
control systems, and negotiation is important in determining the size and scope
of such measures, especially given the subjective perception of odors
generally. It may also be helpful to include an objective standard of
negative pressure for odor control. Noise mitigation is likewise an issue
as to which landlords may be sensitive. Restaurants draw crowds of people who
are out to enjoy themselves, which leads to loud voices, music, and other noise
that emanates from the restaurant in a way that may affect other abutters and
neighbors, especially residences or hotels.
Operational
Issues:
·
Hours of
Operation: All businesses are
sensitive to their hours or operation, but it is particularly important for
restaurants to understand the impacts that may come with later hours, which
often cause landlords concern (especially if the restaurant serves alcohol). If
the restaurant has outdoor seating or a patio area, are those hours the same as
for the interior space? Some liquor licenses or municipal regulations may
also restrict operations, so it is important to understand and comply with the
requirements and rules of governing bodies.
·
Deliveries: Restaurants receive multiple deliveries daily, often
greater than other types of businesses. The logistics of delivering food
to the restaurant are critically important. Sometimes landlords desire to limit
the hours during which deliveries may be made or the loading docks (if any)
that may be used. Counsel should know how deliveries will be made and
determine whether any restrictions on same will be troublesome to the
restaurant’s operations.
·
Trash: Restaurants generate a substantial amount of trash,
both wet and dry, food and nonfood. The location and adequacy of trash storage
as well as the frequency of removal are key issues to specify in the lease.
Some landlords also require a cold storage area for food waste; and of
course, care should be taken to avoid vermin infestations. Where will the
tenant need to take its trash? If the common trash room is far from the
kitchen, that may pose problems for restaurant staff.
·
Parking: Vehicle parking is an issue for all tenants, but it
is often magnified for restaurants. Counsel should understand where the
restaurant’s patrons are expected to park, and if desired seek to negotiate
designated takeout parking spaces for the restaurant. If there is to be valet
parking, or if a development designates certain areas as approved for ride
share drop-off and pick-up and not others, counsel should understand whether
those services and areas pose a business risk for the client.
Exclusive Issues:
Many types of retail
businesses seek exclusives in leases, but restaurants are particularly invested
in ensuring that landlords do not lease other space to a competitor restaurant.
If the development contains a hotel, the restaurant lease should contain
an exclusive which prevents the hotel from operating a similar restaurant.
Timing Issues:
If the restaurant is located in a mixed-use project or shopping center, or
otherwise not on its own parcel, the restaurant will want to negotiate the
ability to determine when construction occurs and when it is obligated to open
for business. Timing of construction can be a big risk, as delays and
interruptions are expensive and set back the opening. Aside from construction
timing, opening requirements may be important, especially in light of whether
other tenants in the project are open and operating. Restaurant counsel
may seek an opening co-tenancy requirement such that the restaurant will not be
obligated to open until the major tenant or a substantial portion of the
development is also open.
In summary, restaurant leases are more complicated
than other retail leasing; and restaurant counsel should be aware of these
unique business issues and strive to fully understand the details of its
client’s business in order to set the restaurant on a successful path.
Jennifer Connelly is a partner at Sherin and Lodgen
LLP with experience in real estate acquisitions, development, leasing, and
financing. Jen represents retailers, developers, and institutions on all
aspects of commercial real estate transactions. A partner in the firm’s
Renewable Energy Practice Group, Jen advises institutional investors,
industrial companies, and other types of commercial property owners on solar
leasing matters for rooftop, ground mounted, and canopy facilities. Her email
is jiconnelly@sherin.com.
A past chair of REBA’s Commercial Leasing Section, Rick
Heller is of counsel at Sherin and Lodgen LLP’s real estate department. Rick
advises clients on all aspects of commercial real estate transactions. He previously served as Senior Vice President
and General Counsel to Legal Sea Foods for 17 years. Rick’s email address is rheller@shrein.com.
