Latino entrepreneurs often face plenty of legal issues when attempting to open a start-up restaurant. However, investing in a restaurant business is an important area of engagement for Hispanic entrepreneurs. Above all other business issues that need to be considered beforehand, the negotiation of a lease takes precedent.
How the restaurant can be financed and where the establishment should be located must be considered beforehand, but the make or break issue is whether a workable lease can be negotiated with the prospective landlord. Aside from hiring a business law attorney, here are five insights to guide Hispanic restaurateurs through this process:
How will you structure your corporation?
A restaurateur executes the lease as an authorized representative of a restaurant corporation. How will that corporation be structured. Will it be a limited liability company? What about an S Corporation or a standard C corporation? Have you considered a partnership? Each form has its advantages and disadvantages.
What will the purpose of the leasehold be?
The use clause is the provision of the lease that defines what the purpose of the lease will be. The landlord will attempt to restrict the usage of the space. The restaurateur will want to broaden it. The restaurant owner might want to use outside space to serve patrons. He or she might want to serve liquor.
How will rent be arranged?
The payment of a security deposit and a rent schedule indicating the monthly amount of rent due are the basic provisions provided for in the rent clause. The restaurateur should also determine how the rent is calculated on a per square-foot basis. He or she should know the framework for rent escalations, the extent to which and the circumstances under which it can be increased and the amount of escalation that can be anticipated.
What are “Triple Net Leases”?
The definition of this type of lease is that it allows the restaurant to pay a lower base rent in consideration for paying an allocated percentage of property taxes, building insurance and maintenance and repair costs based upon square footage of use. These are all costs normally paid by the landlord and therein lies the caution. The lower initial rent costs are alluring. However, the moment there is a structural problem that impacts maintenance, repair and/or insurance costs, the savings are out the window. You are also generally accepting the premises “as is”. This means you are assuming all risks associated with the property. That includes potentially hidden maintenance and repair risks. As a result, these issues must be carefully negotiated as part of the lease negotiation.
Is there a provision for transfers and subleases?
It is typical for leases to contain a provision that requires tenants to obtain permission from the landlord to sublease or assign a lease to a third-party. This clause should be reviewed in detail.
What about adjacent tenants or landholders?
If the premises must be expanded, involving major reconstruction, this might require access to the premises of adjacent tenants or landholders. The lease should expressly impose the obligation on the landlord when it comes to ensuring access to adjacent properties. Otherwise, your restaurant may face an unsympathetic third-party when it comes time to complete reconstruction. There is language that can be included in the lease that requires the landlord to exercise his or her right of entry onto the adjacent premises, in case a build-out must be completed.
If you have any questions regarding the start-up of your restaurant business or commercial leases, contact this office for a consultation.
The Law Office of H. Benjamin Sharlin LLC
is owned and operated by H. Benjamin Sharlin and serves all of Mercer County, New Jersey and the surrounding areas. Mr. Sharlin is a bilingual Spanish-speaking attorney who vigorously represents the interests of all his clients.
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