Restaurant Leasing Within a Shopping Center

In particular, a landlord may want to specify how 'wet' trash may be stored and removed. Often, there is a specific receptacle for 'wet' trash that will prevent the proliferation of rodents in and around the shopping center. Further, the landlord and tenant may want to address a specific charge for the vast amount of trash that will need to be removed from restaurants and from the food court. If a food court exists, the landlord may want to establish a separate charge (e.g., Food Court Common Area Maintenance Charge) that is assessed only to the restaurant tenants or only to the tenants in the food court area, so as to not increase the costs for all tenants at the shopping center.

Often, the charge associated with Food Court Common Area Maintenance is tied directly to the gross sales of the individual restaurant tenant. This method of assessing the Food Court Common Area Maintenance Charge is often the best way to assess how much trash is being generated by each restaurant tenant in the food court area. Theoretically, higher gross sales generated by a restaurant tenant will translate to a higher amount of trash generated by that restaurant tenant. Tenants may want to attempt to control this charge by limiting the percentage deducted for Food Court Common Area Maintenance above a certain threshold of gross sales, since at some level of gross sales, all Food Court Common Area Maintenance costs should be covered.

Pest and Rodent Control

Because restaurant tenants generate large amounts of trash and 'wet' trash, restaurant tenants tend to attract rodents and other undesirable animals and pests to the shopping center site. As a result, landlords are forced to deal with the pest extermination problem either by causing each restaurant tenant to provide pest extermination services or by having the landlord contract to provide pest extermination services for all of the restaurant tenants. Typically, landlords are better served by contracting on behalf of all of the restaurant tenants, so that one designated pest extermination service will provide all pest extermination services for all restaurant tenants at the shopping center. There are several reasons why landlords are better served by having one pest extermination service provide all extermination services for all restaurant tenants. First, certain restaurant tenants may elect not to perform the pest extermination services on a regular basis. Also, certain pest extermination service companies are better than others. As a result, for both unified pest extermination services and for consistency in the pest extermination services being provided, it is suggested that one extermination company provide all pest extermination services for all restaurant tenants and that each tenant be billed a certain portion of the overall service invoice.

Further, a 'walk of the property' by the landlord and the pest extermination contractor should be performed every calendar quarter, so as to ensure that a rodent problem is not being created and going undetected by the landlord. In addition, a provision should be included in all restaurant tenant leases allowing the landlord to place the individual restaurant tenant user on notice that any practices that are causing rodents to appear at the shopping center be discontinued immediately or the landlord may exercise 'self-help' remedies and obtain reimbursement for such costs from the offending tenant.

Parking

Parking issues often can be very difficult to resolve with restaurant tenants. In particular, parking issues can be caused because parking is critical for the restaurant tenants at certain 'peak' hours of the day; the parking for restaurant tenants often overlaps the parking field for the other tenants of the shopping center; and often valet parking is necessary for certain restaurant tenants. All of the foregoing factors generally serve to create a parking problem for the other tenants at the shopping center. As a result, landlords would be wise to establish parking rules and restrictions for the restaurant tenants.

Landlords of shopping centers should specifically designate certain areas for parking exclusively by the restaurant tenant's patrons, either by placing signage that designates certain spaces to be used solely by the patrons of the designated restaurant or by implementing such other monitoring methods to monitor such designated parking. Without such designated parking spaces, the chances for a restaurant tenant to succeed are greatly inhibited because restaurant customers are not typically willing to walk great distances in order to frequent a restaurant. In addition to assisting the restaurant to succeed, a landlord may receive a further benefit by providing exclusive parking for the restaurant tenant. For instance, a landlord may require the restaurant tenant to maintain, restripe, and repave the parking field that is exclusively designated for the restaurant tenant. Also, the exclusive parking field can be considered part of the restaurant premises, and the restaurant would be obligated to insure the area encompassed by the parking field and to assume responsibility for all liabilities that occur therein.

If reciprocal easement agreements require a certain number of parking spaces for the entire parking field of the shopping center, and providing exclusive parking for the restaurant tenant's patrons will not allow the shopping center to maintain the required number of spaces for the shopping center, then alternatives will need to be examined for ensuring proper parking availability for the restaurant tenants. Concepts such as off-site parking and/or construction of an on-site parking deck may need to be considered when determining what the appropriate parking arrangements will be for the restaurant tenants. For drafting purposes, a site plan should be attached to any agreement between the landlord and the restaurant tenant that will specifically identify the parking areas that are designated for the restaurant tenant.

In addition, the restaurant tenant may require that valet parking be instituted at its location. This valet parking can also cause congestion with adjacent tenants, as well as create certain insurance and liability issues as they relate to the landlord. Since the landlord will most often be named in any lawsuit involving damage to a restaurant patron's automobile that was inappropriately parked by the valet service, the landlord should pay particular attention to the type of valet service being provided, the location where these vehicles are being parked, and the insurance being maintained by the restaurant tenant concerning the valet service. Certainly, the landlord should be named as an additional insured on the tenant's insurance policy as it relates to the valet service. Further, the landlord and the restaurant tenant should agree upon the rules and regulations involving the valet service and where the vehicles will be parked.

Exclusive

Most restaurant tenants these days require a restriction upon what products other tenants of the shopping center may sell, so that other tenants will not sell food products similar in nature to the food products being sold by the individual restaurant tenant. Unfortunately, most of the exclusive uses being requested by the restaurant tenants are very broad in nature. For instance, a restaurant exclusive may be for the exclusive sale of 'Asian cuisine.' However, it may be difficult to determine whether the exclusive is being violated by another tenant selling 'Asian cuisine.' Very often, it is unclear whether the cuisine is 'Asian' or simply a modified version of another type of cuisine. Also, if 'sushi' is sold, it is unclear whether the sale of 'sushi' is an 'Asian cuisine' or a different type of cuisine altogether. As a result, there are certain basic steps that a landlord should take in its lease agreement in order to ensure that the exclusive that the landlord believes it is granting, is actually what is agreed to between the parties.

1) There should be a menu attached to the lease that identifies those food products that the restaurant tenant is permitted to sell exclusively. While the restaurant tenant will want the maximum amount of flexibility in its lease agreement as to products for which it has an exclusive, including those products that may be developed over the course of the term of the lease, the landlord should be careful to only allow an expansion of the list of exclusive food products to the extent that it does not violate another exclusive use being conducted at the shopping center.

2) The exclusive use should be limited to those situations where the restaurant tenant is selling that type of food product at its location. In the event a restaurant tenant has an exclusive right to sell 'Asian cuisine' the restaurant tenant should be obligated at all times during the term to sell 'Asian cuisine' from the restaurant premises. Once the restaurant is no longer selling 'Asian cuisine' the exclusive right to sell 'Asian cuisine' should become null and void.

3) There should be a notice and cure period under which the landlord may attempt to cause the offending restaurant that is violating the restaurant tenant's exclusive use, to discontinue it violation. A landlord may also request that during the period it is diligently attempting to cause a tenant to cease violating the restaurant tenant's exclusive use, the restaurant tenant would not be permitted to exercise any remedies for such violation. Similarly, there should be an exception to the exclusive use for a 'rogue' tenant that is selling a food product in violation of a restaurant tenant's exclusive use, even though the tenant is prohibited from selling that food product. At a minimum, the landlord should be given a certain period of time within which to cause the 'rogue' tenant to stop selling the food product that violates the exclusive use.

4) Establish what the remedy will be in the event the exclusive use is violated. For instance, a reduction in rent, the right of the restaurant tenant to impose an injunction, the right of the restaurant tenant to terminate the lease, etc.

By carefully crafting the exclusive rights of the restaurant tenants, a landlord and restaurant tenant can avoid costly legal battles over what rights the restaurant tenant was actually granted and what rights and remedies the restaurant tenant has for violation of the exclusive use clause.

Conclusion

Obviously, the ability of the landlord or the restaurant tenant to impose provisions benefiting one or the other will depend upon the relative bargaining power that each party has. However, the concepts that are enunciated above should be addressed in each restaurant tenant's lease, so as to avoid disputes that may arise in the future, based upon the lease agreement being 'silent' or unclear regarding such issues.

Glenn A. Browne, a member of this newsletter's Board of Editors, is a shareholder in the law firm Braun, Browne & Associates, P.C., located in Riverwoods, IL. Browne's law practice is concentrated in the areas of purchase and sale of real estate, commercial leasing, and lease-related matters.

While all retail leases pose an array of issues to the landlords and tenants involved, retail leases relating to restaurants pose certain other issues that must be addressed in order to avoid surprise costs, liabilities, and delays. This article addresses several of those issues that relate to restaurant leases in a shopping center setting (either in a food court or as an outparcel location), including trash removal, pest and rodent control, parking, and exclusive uses.

Trash Removal

The concept of trash removal typically impacts restaurant tenants more than other tenants at a shopping center because issues such as 'wet' trash are often specific to the restaurant tenants. Also, restaurant tenants tend to generate substantially more trash than other tenants at the shopping center. Finally, in the event that the shopping center has a food court, the trash generated in the food court area is generally only caused by the various food court tenants. As a result, landlords and tenants may want to attempt to address these trash removal issues in a manner different from the way trash removal issues are addressed for other tenants in the shopping center.

In particular, a landlord may want to specify how 'wet' trash may be stored and removed. Often, there is a specific receptacle for 'wet' trash that will prevent the proliferation of rodents in and around the shopping center. Further, the landlord and tenant may want to address a specific charge for the vast amount of trash that will need to be removed from restaurants and from the food court. If a food court exists, the landlord may want to establish a separate charge (e.g., Food Court Common Area Maintenance Charge) that is assessed only to the restaurant tenants or only to the tenants in the food court area, so as to not increase the costs for all tenants at the shopping center.

Often, the charge associated with Food Court Common Area Maintenance is tied directly to the gross sales of the individual restaurant tenant. This method of assessing the Food Court Common Area Maintenance Charge is often the best way to assess how much trash is being generated by each restaurant tenant in the food court area. Theoretically, higher gross sales generated by a restaurant tenant will translate to a higher amount of trash generated by that restaurant tenant. Tenants may want to attempt to control this charge by limiting the percentage deducted for Food Court Common Area Maintenance above a certain threshold of gross sales, since at some level of gross sales, all Food Court Common Area Maintenance costs should be covered.

Pest and Rodent Control

Because restaurant tenants generate large amounts of trash and 'wet' trash, restaurant tenants tend to attract rodents and other undesirable animals and pests to the shopping center site. As a result, landlords are forced to deal with the pest extermination problem either by causing each restaurant tenant to provide pest extermination services or by having the landlord contract to provide pest extermination services for all of the restaurant tenants. Typically, landlords are better served by contracting on behalf of all of the restaurant tenants, so that one designated pest extermination service will provide all pest extermination services for all restaurant tenants at the shopping center. There are several reasons why landlords are better served by having one pest extermination service provide all extermination services for all restaurant tenants. First, certain restaurant tenants may elect not to perform the pest extermination services on a regular basis. Also, certain pest extermination service companies are better than others. As a result, for both unified pest extermination services and for consistency in the pest extermination services being provided, it is suggested that one extermination company provide all pest extermination services for all restaurant tenants and that each tenant be billed a certain portion of the overall service invoice.

Further, a 'walk of the property' by the landlord and the pest extermination contractor should be performed every calendar quarter, so as to ensure that a rodent problem is not being created and going undetected by the landlord. In addition, a provision should be included in all restaurant tenant leases allowing the landlord to place the individual restaurant tenant user on notice that any practices that are causing rodents to appear at the shopping center be discontinued immediately or the landlord may exercise 'self-help' remedies and obtain reimbursement for such costs from the offending tenant.

Parking

Parking issues often can be very difficult to resolve with restaurant tenants. In particular, parking issues can be caused because parking is critical for the restaurant tenants at certain 'peak' hours of the day; the parking for restaurant tenants often overlaps the parking field for the other tenants of the shopping center; and often valet parking is necessary for certain restaurant tenants. All of the foregoing factors generally serve to create a parking problem for the other tenants at the shopping center. As a result, landlords would be wise to establish parking rules and restrictions for the restaurant tenants.

Landlords of shopping centers should specifically designate certain areas for parking exclusively by the restaurant tenant's patrons, either by placing signage that designates certain spaces to be used solely by the patrons of the designated restaurant or by implementing such other monitoring methods to monitor such designated parking. Without such designated parking spaces, the chances for a restaurant tenant to succeed are greatly inhibited because restaurant customers are not typically willing to walk great distances in order to frequent a restaurant. In addition to assisting the restaurant to succeed, a landlord may receive a further benefit by providing exclusive parking for the restaurant tenant. For instance, a landlord may require the restaurant tenant to maintain, restripe, and repave the parking field that is exclusively designated for the restaurant tenant. Also, the exclusive parking field can be considered part of the restaurant premises, and the restaurant would be obligated to insure the area encompassed by the parking field and to assume responsibility for all liabilities that occur therein.

If reciprocal easement agreements require a certain number of parking spaces for the entire parking field of the shopping center, and providing exclusive parking for the restaurant tenant's patrons will not allow the shopping center to maintain the required number of spaces for the shopping center, then alternatives will need to be examined for ensuring proper parking availability for the restaurant tenants. Concepts such as off-site parking and/or construction of an on-site parking deck may need to be considered when determining what the appropriate parking arrangements will be for the restaurant tenants. For drafting purposes, a site plan should be attached to any agreement between the landlord and the restaurant tenant that will specifically identify the parking areas that are designated for the restaurant tenant.

In addition, the restaurant tenant may require that valet parking be instituted at its location. This valet parking can also cause congestion with adjacent tenants, as well as create certain insurance and liability issues as they relate to the landlord. Since the landlord will most often be named in any lawsuit involving damage to a restaurant patron's automobile that was inappropriately parked by the valet service, the landlord should pay particular attention to the type of valet service being provided, the location where these vehicles are being parked, and the insurance being maintained by the restaurant tenant concerning the valet service. Certainly, the landlord should be named as an additional insured on the tenant's insurance policy as it relates to the valet service. Further, the landlord and the restaurant tenant should agree upon the rules and regulations involving the valet service and where the vehicles will be parked.

Exclusive

Most restaurant tenants these days require a restriction upon what products other tenants of the shopping center may sell, so that other tenants will not sell food products similar in nature to the food products being sold by the individual restaurant tenant. Unfortunately, most of the exclusive uses being requested by the restaurant tenants are very broad in nature. For instance, a restaurant exclusive may be for the exclusive sale of 'Asian cuisine.' However, it may be difficult to determine whether the exclusive is being violated by another tenant selling 'Asian cuisine.' Very often, it is unclear whether the cuisine is 'Asian' or simply a modified version of another type of cuisine. Also, if 'sushi' is sold, it is unclear whether the sale of 'sushi' is an 'Asian cuisine' or a different type of cuisine altogether. As a result, there are certain basic steps that a landlord should take in its lease agreement in order to ensure that the exclusive that the landlord believes it is granting, is actually what is agreed to between the parties.

1) There should be a menu attached to the lease that identifies those food products that the restaurant tenant is permitted to sell exclusively. While the restaurant tenant will want the maximum amount of flexibility in its lease agreement as to products for which it has an exclusive, including those products that may be developed over the course of the term of the lease, the landlord should be careful to only allow an expansion of the list of exclusive food products to the extent that it does not violate another exclusive use being conducted at the shopping center.

2) The exclusive use should be limited to those situations where the restaurant tenant is selling that type of food product at its location. In the event a restaurant tenant has an exclusive right to sell 'Asian cuisine' the restaurant tenant should be obligated at all times during the term to sell 'Asian cuisine' from the restaurant premises. Once the restaurant is no longer selling 'Asian cuisine' the exclusive right to sell 'Asian cuisine' should become null and void.

3) There should be a notice and cure period under which the landlord may attempt to cause the offending restaurant that is violating the restaurant tenant's exclusive use, to discontinue it violation. A landlord may also request that during the period it is diligently attempting to cause a tenant to cease violating the restaurant tenant's exclusive use, the restaurant tenant would not be permitted to exercise any remedies for such violation. Similarly, there should be an exception to the exclusive use for a 'rogue' tenant that is selling a food product in violation of a restaurant tenant's exclusive use, even though the tenant is prohibited from selling that food product. At a minimum, the landlord should be given a certain period of time within which to cause the 'rogue' tenant to stop selling the food product that violates the exclusive use.

4) Establish what the remedy will be in the event the exclusive use is violated. For instance, a reduction in rent, the right of the restaurant tenant to impose an injunction, the right of the restaurant tenant to terminate the lease, etc.

By carefully crafting the exclusive rights of the restaurant tenants, a landlord and restaurant tenant can avoid costly legal battles over what rights the restaurant tenant was actually granted and what rights and remedies the restaurant tenant has for violation of the exclusive use clause.

Conclusion

Obviously, the ability of the landlord or the restaurant tenant to impose provisions benefiting one or the other will depend upon the relative bargaining power that each party has. However, the concepts that are enunciated above should be addressed in each restaurant tenant's lease, so as to avoid disputes that may arise in the future, based upon the lease agreement being 'silent' or unclear regarding such issues.

Glenn A. Browne, a member of this newsletter's Board of Editors, is a shareholder in the law firm Braun, Browne & Associates, P.C., located in Riverwoods, IL. Browne's law practice is concentrated in the areas of purchase and sale of real estate, commercial leasing, and lease-related matters.