Five Ingredients for Negotiating Restaurant Leases in Office Buildings
July 2, 2013
Restaurants located in office buildings can challenge the most seasoned office leasing professionals. They have a different set of “ingredients” and must be treated differently than office leases. Restaurant leases can be messy, but if handled properly they can garner positive attention for your office buildings.
Here are at least five major restaurant “ingredients” in no particular order of importance to consider adding to your restaurant leases:
1. Trash Removal – Not surprisingly, restaurants produce a lot of trash. Not only that, restaurant trash is wet and heavy, which obviously differs from office paper trash. Consider whether your building’s trash contractor can accommodate removal of such trash or whether special arrangements must be made. Consider further who is responsible for those special arrangements? Does the restaurant use its own trash receptacles or share with other tenants? Does your building have a trash compactor that can handle wet trash? Is that something you might add? Consider what happens if there is a breakdown in the arrangements. Do you have the right to step in to fix the problem and charge it back to the restaurant (perhaps also with an add-on administrative fee for the trouble)? Also, how is the trash making its way to the dumpster, compactor or special trash receptacle? Are the restaurant employees exiting the restaurant and walking outside of the building to the dumpsters (which could cause a mess outside of the building) or are interior corridors available? Even if interior corridors are available, are they such that wet, heavy trash should be making its way through them?
2. Grease – Like trash, consider whether your restaurant tenant will be using black metal for grilling or deep fryers for deep frying. All of that grease needs to go somewhere: there are proper ways to dispose of it. Does the building already have a method for removing grease from the premises? Will the restaurant have a grease trap? Should it? How often should the restaurant be cleaning its grease trap, hoods and fryers? Should the restaurant be obligated to hire a professional service to clean its grease trap, hoods and fryers? Is there somewhere in the loading docks or elsewhere to store grease until it can be retrieved by a third party service? Should the restaurant be responsible to hire and pay for that third party service? What if the restaurant is not properly cleaning grease or disposing of it on a regular basis? Do you have the right to step in and fix the problem (and again, perhaps, charge the restaurant an add-on administrative fee for the trouble)?
3. Pest/Odor Control –This probably comes as no surprise, but food attracts pests. Does your lease require your restaurant tenant to have a pest control contract in place? Does your lease require your restaurant tenant to provide you with a copy of the contact, even if only upon request? Do you have the right to step in and fix the problem if the restaurant fails to keep a contract in place or if pests are found elsewhere in the building (and again, perhaps, charge the restaurant an add-on administrative fee for the trouble)? Additionally, what about odors that exit the restaurant and affect other tenants? Is the restaurant obligated to control the odors that might affect other tenants? Can you fix odor problems and charge that back to the restaurant if other tenants complain about the odors?
4. Water Usage – Will the restaurant tenant be a heavy water user? The answer is probably yes given the nature of its business, especially compared to office or retail sales. Are there tap-in fees in the municipality where your building is located? Tap-in fees can be charged where heavier than normal water usage is planned. The definition of heavy water usage varies (consider a Chicago restaurant near Lake Michigan versus a restaurant in Death Valley, Nevada), but it helps to keep this in mind when negotiating with a restaurant. Who is obligated to pay those fees, if any? Furthermore, how will you calculate the restaurant’s actual water usage if heavy use of water is needed? It would not necessarily be fair to your office tenants to allocate the restaurant’s water usage to them in your calculation of the building’s overall operating expenses. Consider installing a water meter specifically for your restaurant tenant if one does not already exist.
5. Access/Restrooms/Outdoor Seating – Okay, you got me: there are three “ingredients” here, but they are in the same family since you have to deal with the public using your building when dealing with restaurants. On that note, will access be available through an outdoor entrance to the restaurant only or will lobby access also be available? Even if you want to provide lobby access, is it feasible? Maybe you only intend to provide lobby access. Does that make sense? What about restrooms? Will your restaurant tenant be obligated to provide them within the restaurant or are there common area restrooms in the building lobby that will be made available to the restaurant’s employees and patrons? Will your building meet local building code requirements if restaurant patrons are using the common area restrooms? Consider also that people like to sit outside to eat on those nice summer days. Your tenant may want the option to provide outdoor seating. Is it feasible? Does the municipality allow it, and if so is there a special permit or license required? If so, who is responsible to obtain that license, pay for it and keep it current? What about insurance? Make sure that the insurance required to be carried by the restaurant includes the outdoor seating area, especially since the general public may use the outdoor seating area even if they have not purchased food or beverages from the restaurant. Also, perhaps your restaurant tenant must ensure that it controls solicitation by non-patrons in the outdoor seating area. What about the type of outdoor furniture the restaurant is permitted to use? Are you concerned whether it will look nice or cheap? Where will the restaurant store it overnight and during the off-season? What about cleanliness in the outdoor seating area? How often should the restaurant be obligated to clean the outdoor seating area? Again, if there is a breakdown in keeping the permit current, controlling solicitation or keeping the area clean do you have the right to step in and fix the problem at the restaurant’s cost (with a mark-up)?
These are not the only “ingredients” to consider for your restaurant leases, but they will certainly have an immediate impact. Other retail specific provisions, like tenant exclusive use provisions (meaning restrictions on any other restaurants in the building selling the same or similar food as tenant) are certainly a big “ingredient” for restaurant leases. Check back soon for more articles on that and other topics.