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Restaurant Leases – Tips for Tenants

You’ve found an ideal property in which to set up your restaurant and you can almost smell the aroma of your business’ success. You can’t wait to get started. The last thing you probably feel like doing is wading through the legal issues. Unfortunately, this is a necessary evil. Get your lease terms right you will reap the benefits.

Like most people who open a new restaurant, you’ve probably decided that you will be renting the property (at least to start with) as you probably don’t want to waste valuable cash on buying the freehold. So, the first thing you’ll probably need to do is negotiate the main lease terms. Landlords and agents call these terms the ‘Heads of Terms’. They’re not binding, but they do set out the structure of the deal, so it’s well worth spending the time getting the heads of terms right.

Here are some important points that you should consider including in the heads of terms:

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  • Rent Free Periods
  • Works
  • Sit Out Licence
  • Repairs
  • Right to Break
  • Permitted Hours
It can be very expensive fitting out a property to use as a restaurant. Architects may be needed to come up with a trendy layout and feel, and quality kitchen equipment doesn’t grow on trees. You probably won’t be receiving much income whilst you’re fitting out the place and during those early days when you’re waiting for the public to learn about your great new restaurant. Rent free periods can really help you out at this difficult time and you should encourage your landlord to work with you to make the business a success, so you can both benefit in the long term (read about negotiating a rent free period).
Restaurants often require special works to be carried out to the premises. For example, restaurant kitchens tend to generate a lot of smoke, so special flues and extraction equipment may need to be fitted that affect other parts of the landlord’s building. Tenants need permissions to carry out works. Not only will you need to be careful to make sure that all planning consents are obtained but you need to ensure that the landlord is 100% happy with your proposals to have special pipes/flues/equipment running through other parts of his building. Make sure he is aware from the start of just what works you intend to do.
If you intend to put seating for customers outside, make sure early on that the landlord will allow this and, if so, on what terms. Keep in mind also, that you may need a licence from the Council to put tables and chairs for your restaurant in the street (usually called a ‘sit out licence’).
Tenants of restaurants tend to take a lease of part of a building only (eg the basement or ground floor only). If so, you need to make sure that the Landlord agrees to keep the rest of the building, especially the structure, exterior parts and roof, in good repair. So, if the roof collapses, you don’t want the landlord shrugging his shoulders and saying it’s not his responsibility. You should also try to make sure that landlord is not entitled to recoup the cost of such repairs from you (often called a ‘service charge’). If you must pay towards these costs make sure you only agree to pay a fair proportion and that a maximum figure is agreed for which the landlord can charge you during any one year of the lease.
It’s good to have an escape plan in case your restaurant does not take off. You should therefore always try to agree a right to break the lease early on in the term (for example on the 2nd or 3rd anniversary). That way, you know that you won’t have to find a way of keeping up with rental payments until the end of the lease for a Property you would rather be without.
Make it clear that you are allowed to trade 24/7 (subject to planning restrictions and other applicable laws). This might not be so easy if your restaurant is in a shopping centre where opening hours are strictly regimented. Still, if the issue is discussed openly, a happy medium can often be agreed.

There are, of course, many other issues to think about when agreeing the terms of your restaurant lease. That said, the above should be good food for thought before you start your negotiations. If you can squeeze some of them into your lease, it could help you massively in the long run...

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Commercial Property Team:

Commercial Property Solicitor
James Edwards is a commercial property solicitor advising landlords and tenants on commercial leases. He also has experience in buying and selling businesses. Contact James for a free no obligation quotation today by phone or via our contact form.
Commercial Property Solicitor
Sophie McGregor is a commercial property solicitor working with James. She assists clients with all aspects of leases. Sophie has detailed knowledge of most types of commercial property transactions.

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