Negotiating and Drafting Restaurant Leases

Description

Restaurant leases present particular issues for landlords and tenants because of the expense of tenant improvements and operations, the impact of a restaurant tenant on other tenants, potential franchise affiliations, and using high-maintenance equipment.

Counsel should negotiate security deposits, guaranties, and letters of credit with an understanding of 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.

If 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.

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 a retail development.

Listen as our panel discusses the legal and practical concerns with restaurants and how they impact the drafting and negotiation of restaurant leases for both the landlord and the tenant.