Typical Restaurant Lease Specifics

Term of Lease.

Most food service business leases are for five years, with two additional five-year options for a total of 15 years. In addition to rent and percentage factors, it is not uncommon for a lease to include an escalation clause that specifies a “reasonable” rent increase after the first five years. The increase could be determined by the Consumer Price Index or the current market rate (what similar spaces are being rented for at the time the lease is negotiated). Make sure the reason for any rent increase is clearly stated in the lease agreement.

Financial Responsibility.

Early in the lease negotiations, you should address the sensitive issue of who will be responsible for paying off the lease if the restaurant must close for any reason. If a person signs the lease, he or she is responsible for covering these costs with personal assets. If the lease is signed on behalf of a corporation, the corporation is legally obligated. As you might expect, paying the state fees to incorporate before signing a lease makes more sense.

It’s possible that your landlord will go bankrupt, not you. In the event of the landlord’s financial default (or sale to a new owner), your lease should state that your business cannot be forced out and that the new owner must abide by the terms of the existing lease until it expires. This is known as a recognition clause.

Multiple partners in your corporation must have specific agreements about their individual roles in running the business. You should probably also include a description of how a split would be handled if any partner decides to leave the company. It is well worth the expense to have these important contractual agreements written and reviewed by an attorney and an accountant.

Maintenance Agreement.

Another critical component of a lease is a detailed breakdown of who is responsible for building repairs. Some leases state that the tenant is solely responsible for maintenance. Others delegate structural and exterior repairs, such as roofing and foundation work, to the landlord, while tenants handle interior maintenance, such as pest control or plumbing and electrical repairs. These details are easy to overlook if you have your heart set on a specific location. However, keep in mind that all buildings require maintenance, and the costs can quickly add up. How much are you willing to do—and how much are you willing to pay for?


In general, it is the tenant’s responsibility to obtain insurance against fire, flooding, and other natural disasters, as well as general liability insurance in the event of an accident or injury on the premises. The lease must specify how the policy should be paid (usually monthly or yearly) as well as the amount of coverage required. Because both the tenant and the landlord are listed as insured parties, the landlord should be provided with copies of all insurance policies for his or her records.

Real Estate Taxes.

Each city and county determines the worth of land and buildings and taxes addresses based on their assessed value. These taxes are typically due once a year in a lump sum, but most landlords will request that they be prorated and paid monthly, in addition to rent and insurance. A triple net lease is a lease that combines rent, taxes, and insurance into a single monthly payment.

Municipal Approval.

Just because you sign a lease doesn’t mean you’ll ever serve a meal at this site. Cover your bases by insisting in writing that this lease is void if city or county authorities do not approve the location to operate as a restaurant (or bar, or cafeteria, or whatever you’re planning). Potential roadblocks: Do you intend to serve alcohol? Is your concept somewhat controversial—scantily clad waitstaff, for instance? You’ll save yourself a lot of time and money if your lease allows these items in writing and if you also obtain permission from the county or city first. Politely inquire about all necessary licenses and permits before you begin finish-out work on the site.

Moving On.

Always allow for contingency plans should you decide this is not the right location for you. Insert a clause in the lease that says you do not have to pay the remainder of the lease in full if you decide to close and/or relocate. If there is a “lease buyout” amount, it should decrease with the age of the lease. Also include your right to assign and sublease—that is, to lease the premises (along with the lease itself) to another business without having to pay the landlord for the unexpired term of your lease.

The landlord usually requires his or her prior written consent, which is understandable. Insert this statement in the lease: “Consent will not be withheld unnecessarily.” That way, when you find a reasonable and financially sound tenant to take over your lease, the landlord can’t refuse without a very good reason.

In mall or strip mall locations, two other clauses may be appropriate. A go-dark clause allows you to terminate the lease or receive a rent reduction if an anchor tenant or other major tenants in the mall decide to leave or go out of business, compromising the success of your business and others that remain. An exclusivity clause protects your business by restricting the types of operations that can open, either in the same mall or in a particular section of the mall, so that you’re not outdone by a competitor on your own turf.

The Infamous “Other”.

Many unusual or unforeseen circumstances might hamper your progress. It may be an antiquated town ordinance, a surprise deed restriction, or an old lien on the property that has resurfaced in your research of the site. Whatever the case, check carefully at city hall to make sure there is nothing unexpected on the horizon. Talk with the landlord, the real estate broker, and other businesses in the area to piece together a complete history of the site you are about to lease. Think of it as a marriage, of sorts. Go in optimistically, but go in with your eyes open.

As an example, a restaurant often requires a greater than normal number of roof penetrations to accommodate kitchen and bathroom exhaust systems, fresh air intakes, and the like. The landlord should be aware of this, and provisions should be made in the lease for the original roofing company to make these modifications and seal the holes. This should keep the roof’s warranty intact.