Understand the Real Estate Framework
Few restaurateurs are fortunate enough to own the buildings in which their restaurants operate. Whether before or after the pandemic, rent is usually a restaurateur’s highest monthly expense. It is very important to understand the contractual relationship with one’s landlord. During the pandemic, many landlords reduced or waived rent to assist the restaurant tenant to ride out the pandemic, rather than carry vacant space and try to locate a new tenant in a market downturn. On the other hand, some well-capitalized restaurateurs took advantage of other restaurants going out of business and landlords needing to fill vacant spaces, signed leases to open new restaurants. Some landlords who lowered or temporarily waived rent added the rent to the end of the lease term, assisting the tenants through the downturn but essentially were only deferring the rent to later.
Some restaurant tenants negotiated the application of their security deposits toward rent due. As the pandemic recedes and consumers return to storefronts, the balance of power, and the relative negotiating strengths, between landlords and tenants will change yet again.
Going forward, restaurateurs must be clear on their lease terms. If the landlord deferred rent during the pandemic, when does the tenant have to pay it back? If the landlord agreed to accept less rent, for how long? Can the restaurant negotiate an increase in rent contingent on an increase in revenue from patrons returning to dine? Is there a replenishment or other change to the security deposit? In these unprecedented times, these issues are all at bay.