Restaurant Owners: Here's how to renegoitate your lease

Restaurant Owners: Here's how to renegoitate your lease

Carrie Pallardy
Carrie Pallardy
 | 
The restaurant business has been one of the hardest hit during the COVID-19 pandemic. State-wide shutdown orders, concerns over staff and customer safety and the continued uncertainty of the pandemic’s timeline have taken a considerable toll.

The restaurant industry lost billions of dollars of revenue in 2020, and 110,000 restaurants are either permanently or temporarily closed, according to the National Restaurant Association.

Restaurant owners are facing the challenge of paying rent while their businesses have been closed, operating as take-out and delivery only and/or serving at limited capacity for months. With this insecurity still at play, many businesses are considering a strategic approach to lease renegotiation.

Look at the Terms 
If you want to renegotiate your restaurant lease, the first step is to take a look at the terms. Does your lease have a force majeure clause? This clause, common in commercial contracts, could potentially help restaurant owners with rent relief.

A force majeure clause is put in place to protect a company when it cannot meet a contract’s obligations due to circumstances beyond its control. In some cases, this could include an event like the COVID-19 pandemic. The Georgia Restaurant Association points to a case in Illinois involving a force majeure clause, indicating this part of a lease could help restaurants with lease renegotiation.

Force majeure clauses can vary greatly from contract to contract. Take a look at your lease to see if this clause might be helpful during the renegotiation.

Think Ahead
While current circumstances are putting a crunch on revenue, try to keep the future in mind when renegotiating your lease. What do you see for the future of your business beyond today’s challenges?

Restaurants and landlords could potentially agree to a percentage lease in which the tenant pays rent as a percentage of gross revenue. This could help to lower rent during the pandemic, but keep in mind, this clause could lead to paying much more in rent when your business recovers. With that in mind, your renegotiated lease could set terms for transitioning away from percentage rent in the future.

Incentivize Renegotiation
Building owners may be willing to renegotiate, but they are likely going to be more interested in changes to the lease that will benefit them in some way as well. If your restaurant is struggling to pay rent and needs to renegotiate, consider potential changes that will serve as a solution for both you as a tenant and the building owner.

For example, you could offer to extend the terms of the lease. Rent may be an issue now, but the restaurant industry is expected to recover in the coming years. Business owners may be concerned about future vacancies in the years to come, making an offer from a tenant to extend their lease an attractive one.

Future Protection
If your landlord is willing to come to the table for renegotiation, it may be helpful to talk about the future. What happens in the case of another pandemic and more mandated shutdown orders? Can a provision be added to the lease to help protect your business from facing a similar challenge down the road?

This article is intended to convey generally useful information only and does not constitute legal advice. Any opinions expressed are solely those of the author, not LawChamps.
 
Carrie Pallardy

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