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3 Clauses That Will Make or Break a Restaurant Lease

by Olufisayo
Restaurant Lease

Location, location, location is the common theory for what will make or break a restaurant’s success. However, your lease, lease, lease is just as crucial.

You could have the area’s hottest restaurant, with glowing reviews and a month-long waiting list. But, a bad lease can bleed those profits dry because you’re paying for a new roof.

To make sure you’re setting your restaurant up for success, here are 3 clauses that could make or break you.

1. Maintenance/ Repairs

Money may be tight in that first year. So, the most important clauses in your restaurant lease are the ones that will protect you from the “surprise costs.” This is why including a maintenance/ repairs clause is crucial.

Too many restaurants find themselves on the hook for repairs to the building. This can absolutely ruin their bottom line and stunt their growth. Restaurants are (hopefully) high-traffic and high-stress buildings. Things happen. Pipes burst and floors need repairs.

Basically, there are three things you can do to prevent this from happening. The first is getting major repairs deducted from your monthly rent. Secondly, you can try negotiating a cap on CAM (common area maintenance) charge increases.

Thirdly, you can negotiate for the landlord to amortize capital costs over the useful life of the improvements, in accordance with generally accepted accounting principles. Now your major improvement costs (i.e. new roof or HVAC system) can be spread over 10 years, instead of the one.

2. An Exclusivity Clause

It’s hard enough to compete against other restaurants in your area. You don’t need one opening up right next to you. An exclusivity clause can prevent that from happening.

This can be particularly important if you’re in a mall, strip mall, or any other area with a series of units that will be up for grabs. Let’s say you’ve opened your own cookhouse. You don’t need a major chain like Outback Steakhouse opening up in a bigger space a short walk away from you.

You need to make sure there is an exclusivity clause in your lease to protect yourself from unwanted competition in the same building.

3. Liquor License Clause

We don’t have to tell you that your liquor license is expensive and it can take quite a bit of time to get it.

Sometimes delays will cause businesses to be faced with a tough decision:

  1. Open for business without it
  2. Delay the opening and pay for the space with no money coming in

Neither is ideal. However, you can protect yourself against this. You can include a clause that will allow you to be able to terminate your lease in the event that you cannot retain a liquor license within a contingency period.

Commercial leases can be very complex, particularly if this is your first restaurant. However, if you protect yourself with the 3 clauses we’ve explored today, you’re setting yourself up to avoid major catastrophes that can cost you your business.

If this is your first lease, we highly recommend you work with an expert in this area who can read things over for you and spot any potential issues or red flags.

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