Whether you’re an established restaurant owner or preparing to set up your first restaurant, it’s important to make sure the terms of the lease you’re entering into meet your needs.
We have identified the top 7 points for tenants to consider when entering into the lease of restaurant premises:
- Rent – Rent is often dictated by a number of factors, such as location and square footage, but landlords will now consider accepting lower base rents with turnover rent top ups. This has its pros and cons, but it can be beneficial for cash flow purposes as it means turnover rent is only paid on a percentage of turnover generated from the property with no commitment to a high rent should the business take time to reach the expected level of trade.
- Rent free period – Unforeseen delays are common when carrying out fit-out works, so tenants should ensure the agreed rent-free period includes some leeway for delays to avoid rent kicking in when the property is not yet open for trade.
- Security of tenure – Tenants need to consider whether the lease will have security of tenure (i.e., a statutory right under the Landlord and Tenant Act 1954 allowing a tenant to renew its tenancy at the end of the contractual term). Many landlords want certainty about the use of the property once the term of the lease expires, however, tenants may want a right to renew given the fitout costs involved with restaurant premises and the time it can take to build up goodwill.
- Pandemic clause – The restaurant sector was hit hard by the pandemic. A tenant taking a lease of restaurant premises should ensure a pandemic clause is agreed in principle at the heads of terms stage to allow for a rent suspension should mandated restaurant closures occur in the future. Landlords often won’t agree to these as part of the lease negotiation unless they are in the heads of terms.
- Assignment/Underletting – Tenants should ensure any leases are as flexible as possible with regards to assignment and underletting. This gives tenants the option to assign or underlet the lease should the restaurant need to close or move location.
- Permitted use –Landlords may try to include restrictions in the lease on noise, hours of trade, takeaway sales and the sale of alcohol. These all need to be considered to check they align with the tenant’s proposed use of the premises and are broad enough for potential assignees in case the tenant decides to assign the lease at a later date.
- Rights – Some form of kitchen extract/ventilation system is usually required in order to operate. A tenant is only granted the rights in the lease, so the lease must include any rights the tenant may need, otherwise tenants could find themselves in a position where they cannot open for trade.
The Hamlins Real Estate team has extensive expertise in negotiating restaurant leases for clients and seeks to obtain the best outcome possible for every client. If you would like to find out how we can help you, please get in touch with Stephanie Brown or Ben Kilshaw.