Tips for Drafting and Negotiating Restaurant Leases

by Arnall Golden Gregory LLP

As restaurants gain popularity as the flashy new anchor tenants in real estate developments, a number of restaurant-specific lease concepts will arise in lease negotiations for a well-planned restaurant space. The importance of certain concepts have been heightened as the development of mixed-use properties has accelerated. Being aware of these concepts and thoroughly contemplating them during lease negotiations will add clarity and certainty when the Lease is turned over to property management after opening night.

1. Scrubbers.

Scrubbers are increasing in popularity, both as a landlord requirement and a requirement per applicable codes and ordinances. A “scrubber” is a piece of equipment which filters odors out of hood exhaust generated by restaurant operators. As developers have moved toward constructing office and residential components on top of street-level retail, scrubbers have become more commonplace. Without a scrubber, a restaurant user at street level might jeopardize the ease with which a landlord can lease or sell multi-family or office constructed above retail. Suddenly those fancy balconies aren’t as much of a selling point as originally envisioned. Scrubbers can be costly to install and maintain, so if you’re doing a deal with a first-time restaurateur, be sure that they’ve priced one into their budget. Also, from a property management perspective, scrubbers should be treated similarly to HVAC units. Tenants should be required to maintain service contracts and provide evidence thereof to their landlords.

2. Grease Traps.

Grease traps are nothing new, but as food halls and restaurant-heavy mixed use projects become more common, it’s important to be sure that your Lease form correctly contemplates how grease trap repair, maintenance and invoicing will work in the real world. A typical form Lease will place repair and maintenance obligations on the tenant, but, increasingly, landlords are constructing communal grease traps which service all or a portion of a development. For a communal grease trap, the repair and maintenance obligation should be on the landlord, with the costs thereof being equitably apportioned among the grease trap users. This is typically accomplished as a proportion, with the cost being allocated based upon a restaurant’s square footage relative to the square footage of all restaurant users connecting to the communal grease trap.

3. Financing.

It’s important for landlords and property managers to have a firm understanding of the capitalization structure of their restaurant tenants. This is a material point as security deposits, guaranties, and letters of credit are negotiated. The financing structure also impacts property managers. Once a Lease is signed, restaurant operators will often apply for funding from traditional and SBA lenders. In connection with that financing, lenders will typically require the landlord to enter into a landlord lien waiver or a landlord lien subordination agreement. In such an agreement, the landlord acknowledges that the lender has a lien right to certain restaurant collateral which is superior to the lien interests of the landlord. If a restaurant defaults on its lease obligations, a restaurant lender will attempt to foreclose upon its lien to obtain legal possession of the collateral which, likely (at least partially), secured the lender’s loan to the restaurant. The landlord can often negotiate a number of safeguards to protect its interests if a lender attempts to foreclose, but lenders will likely require a priority position. That’s something that landlords just have to stomach to make a restaurant deal happen. Lenders will typically agree not to disturb the day-to-day operations of a property as they take back their collateral, including the waiver of the ability to conduct an auction or sale from the restaurant space, which can be particularly disruptive to the aesthetic and day-to-day operations of high-end developments.

4. Franchisor Riders.

A restaurant franchisor will almost certainly require the landlord to enter into an agreement which grants the franchisor certain rights in the event of a default by the franchisee-operator. Franchisors invest significant resources into identifying and securing sites, and if a franchisee-operator isn’t living up to its obligations or expectations, the franchisor will want the ability to take back the space and either operate the restaurant or assign the Lease to another, better-qualified, operator. These franchisor riders are typically attached to the back of the Lease, but owners and property managers should be aware of their obligations to provide notice to the franchisor following a default by the franchisee/tenant under the Lease. Failure to provide notice to the franchisor and an opportunity to cure the default can create liability to the franchisor that no landlord would want to take on. And, the presence of a franchisor’s rider, doesn’t mean that it’s any less important in prudently managing the day-to-day operations of a property featuring restaurant uses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Arnall Golden Gregory LLP | Attorney Advertising

Written by:

Arnall Golden Gregory LLP

Arnall Golden Gregory LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.