Negotiating and Drafting Restaurant Leases: Emerging Trends and Developments

Description

Restaurant leases present unique issues for landlords and tenants beyond those for office and retail use; including, among other matters, the high cost of tenant improvements and operating the business, the impact of a restaurant tenant on other tenants, potential franchise affiliations, and high-maintenance equipment.

If the restaurant is part of a multi-use project, then counsel should understand the scope of the project and stage of development. Counsel should negotiate security deposits, guarantees, and letters of credit to understand the capitalization and franchise structure of a restaurant tenant. If a restaurant defaults on its lease, a restaurant lender will want to foreclose on equipment and furnishings that secured the lender's loan.

When the tenant is a part of a restaurant chain and defaults under its franchise agreement, the franchisor may want the ability to take back the space and either operate the restaurant or assign the lease to another operator. The franchise agreement may require specific terms in the lease that may be objectionable to the landlord.

Restaurant leases must also address issues common to other tenants, such as permitted and exclusive uses in a center, co-tenancy and right to go dark, operating expenses, termination provisions, parking, options to renew, insurance, and mutual waivers of subrogation. These issues are of heightened importance when a restaurant is considered an anchor in retail development.

Listen as our expert panel discusses drafting and negotiating the provisions of restaurant leases and how actual negotiations should always take the needs of the renting entity into consideration. Restaurants have different space needs, unique requirements, and other leasing priorities. The panel will discuss how best to address concerns with restaurant use, tenant improvements, franchise relationships, insurance provisions and coverages, operational issues in mixed-use developments, and other key considerations.