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Restaurant Leases – Food for Thought

18 July 2017

Leasing restaurant premises rather than buying them is often preferred, particularly for most new restaurants; it is better for cashflow, allows flexibility and has less long-term commitment than buying a property. However, if you don’t negotiate your lease correctly, you could end up with less flexibility than you thought and rather more long-term commitment than you had intended. Here’s some food for thought:-

Rent Free Periods – an excellent tool to help with cash flow especially if there is work to be done to the property before you can have your grand opening.  Some properties have been vacant for a long time and the landlord is only too happy to agree a period where rent is not payable in return for the property being occupied (and the rates being paid). So, this arrangement can benefit both parties.

Sit Out Licence and Alterations – if you intend to make alterations to the property or have seating for customers outside you must make sure that the landlord will allow this. You will also need a licence from the Council to put tables and chairs in the street, this is called a ‘Sit Out Licence’.

Repairs – most leases require the tenants to keep the property in good repair. Even if the landlord is responsible for some repairs, they will often be able to charge the costs back to the tenant as a service charge. So, if the property is not currently in good condition you need to consider limiting your responsibility to its current state of repair (and evidence that with a schedule of photographs)  or having the landlord carry out or pay the cost of carrying out the repairs before you take the premises on. If you will be paying a service charge, you should also consider capping it.

Right to Break –if things do not go according to plan, you need to be able to exit the lease with as little cost to you as possible. A right to break the lease before the end of the term is a good way to do this. It helps give you peace of mind knowing that, so long as you follow any conditions imposed, you won’t have to keep up rental payments until the end of the lease.

Guarantees and Rent Deposits – particularly if you are a start up business, it is likely the landlord will ask you to either guarantee the lease personally or provide a rent deposit. Beware of guarantees that may tie you into the lease for the full term. For this reason, a carefully worded rent deposit may be preferred, but it is important to get the right advice for you.

This is not an exhaustive list of issues to consider, but rather a brief look at some issues that are often overlooked by tenants, who tend to focus on the obvious terms of a lease and then may miss other less obvious problems. Our experience in acting for many restaurant owners means that we are able to help steer you through the lease minefield. Call our commercial property team today, to see how we can help you in negotiating the lease of your new restaurant, on 01270 625478.

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