Taking a lease of a restaurant? – 5 important points to consider

1. Turnover rent

Many landlords are now willing to share some of the risk of a site not performing as expected by entering into turnover rent leases.  Naturally, both parties will want to maximise their turnover and profits, but tenants should carefully consider:

• what ‘gross turnover’ will include and what items should be excluded, such as monies received for takeaways/deliveries, staff tips or whether the landlord is looking to capture tangential income;
• how the turnover rent will be paid in practice. Typically turnover rent is calculated in arrears but landlords may want payments on account. Also consider appropriate intervals to protect your cash flow and whether the turnover rent will be in addition to or as a top up of any base rent payable; and
• where possible, try to avoid notional turnover for any periods that the restaurant is closed.

2. ‘Keep-open’ provisions.

Keep open clauses require tenants to keep their premises open during set trading hours throughout the lease term. Whilst it’s questionable whether such clauses are enforceable, the argument certainly carries more weight if there’s a turnover rent payable.

When negotiating lease terms, parties should ensure the lease contains clear parameters setting out the minimum trading hours whilst limiting the landlords’ ability to vary the hours. Tenants should retain the ability to close for periods of time, for example, to train staff, carry out repair works, for national holidays or statutory restrictions (such as those imposed during the covid pandemic).

3. Licensing provisions.

Alcohol sales and the provision of late-night refreshment can be a money spinner for hospitality businesses. Restaurant leases often contain provisions setting out how tenants are to deal with any premises licence affecting the property. A good licence is a valuable asset and landlords will want to include protective provisions in the lease to preserve the terms of the licence.

Tenants should try to limit the level of control the landlord has over a licence and minimise circumstances in which they are required to obtain the landlords’ consent to any changes to the licence as you will ultimately be responsible for the landlords’ fees.

4. Conditions for Entry.

Generally, leases reserve the right for landlords to enter the premises for a host of reasons permitted under the lease, such as inspecting the state of repair of the property or carrying out works to adjoining property. Leases should include entry safeguards to minimise disruption to the tenant’s business, such as requiring the landlord to provide a minimum prior written notice, observe any reasonable requirements of the tenant, cause as little interference as possible, make good any damage caused and, where reasonable, exercise any rights outside of your opening hours.

5. Tenant’s Plant.

Heating, ventilation, air conditioning equipment (HVAC) and the like are critical to running any restaurant business. Care should be given in assessing what HVAC is available at the premises, its state of repair, who will be responsible for its maintenance/repair and the costs associated with those works.  Leases should include the right for tenants to connect to, install and maintain any such equipment during the lease term in agreed areas allocated by the landlord.

Why settle for an off the shelf solution?  If you are looking at taking your hospitality concept to the next level and want to speak to a lawyer who understands your business then give the team at Greenwoods Legal LLP a call – and thank us later.