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6 Terms to Consider Before Signing Your Restaurant Lease

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Starting a restaurant can be an exciting and rewarding venture. However, before jumping head first into signing a commercial lease agreement for your restaurant space, you should consider what terms are included in the lease. This article will help you read over your lease agreement by outlining the six key terms you should look out for. 

1. Obligation to Trade Clause

Your landlord may include an obligation to trade clause, which requires your restaurant to trade for specific hours and days. This may create an issue for you if you want your restaurant to be closed for certain hours or have extended hours. 

For example, you may intend to provide a lunch service, close for two hours, and then re-open for your dinner service. You will not be able to open for these hours if your lease states that you can open from 9 am to 5 pm. 

Therefore, you must ensure sure your desired operating hours align with your lease. Otherwise, you should negotiate with your landlord to change the trading hours stated in the lease before signing the agreement. 

2. Noise Restrictions

It is expected that you may play music in your restaurant. However, a noise restriction clause might cause issues if you intend to play loud music. This clause prevents disturbing neighbours and the landlord. If the landlord has included a noise restriction clause due to local council regulations, you may need your council’s consent to play loud music. 

If a noise restriction clause is in your lease, try to negotiate with your landlord to remove it or come to an agreement with your neighbours. All agreements should be recorded in writing. 

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3. Compliance With Food Safety Laws

Before signing your lease, you should check if your landlord requires you to comply with all the food safety laws in New Zealand. These laws are included in the Food Act and are governed by New Zealand Food Safety. You will need to complete an online survey and be given a food control plan to implement by New Zealand Food Safety. However, there are some circumstances where you are not required to have a food control plan.

Food Standards Australia New Zealand has also set out standards that you will need to comply with. Labels and statements about your food must be honest and genuine. Additionally, they should have an accurate name and description. 

It is beneficial to ensure that your restaurant complies with food safety laws before signing your lease. This will ensure that you are following New Zealand laws and you are not in breach of your lease.

4. Lease Term

You should ensure that the lease term suits your restaurant’s needs. A long-term lease has a higher financial consequence and more monthly rent to pay. The last thing you want is to pay rent for a property you do not require anymore. You cannot exit your lease early unless:

  • you assign the lease to someone else; or
  • request a surrender of your lease, which your landlord can refuse.

With a long-term lease, you may be stuck in one location for longer. This can become an issue if, for instance, you are serving a specific type of cuisine and the local market changes its tastes drastically. 

You should sign a short-term lease with renewal options. You can then limit your financial obligations under the lease and have the flexibility to move to a new location. With renewal options, you can maintain location stability and ensure customer relationships are not broken. 

For example, instead of signing a six-year lease, you can sign a three-year lease with a renewal clause.

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Letter to Landlord (request lease assignment)

If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.

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5. Maintenance 

It is expected that your restaurant space includes fixtures such as:

  • stoves;
  • ovens;
  • air conditioning;
  • dining areas; and
  • range hoods. 

Such fixtures and equipment will need to be maintained over time. Your lease may require you to carry the maintenance obligations for the fixtures seeing as your restaurant is using them. Before you sign the lease, you should check that all fixtures and equipment are in good working order to prevent yourself from carrying extra financial burden. 

6. Exclusive Use Rights

If you are entering into a restaurant lease on a commercial property with other vacant premises, you should ensure that your lease has an exclusive rights clause. With an exclusive rights clause, the landlord cannot allow a competitor to operate near your restaurant location. Having competitors can put a spanner in the works and could put you at a severe disadvantage. 

If your lease does not have an exclusive rights clause, you can try to negotiate with your landlord to include one. This clause will protect your interests and ensure that you keep sales and customers from an unexpected competitor. 

Key Takeaways

Signing a commercial lease agreement can be a big step. Accordingly, you need to ensure that you commit yourself to a lease that is most suitable for your restaurant business. Before entering into a restaurant lease, you should look out for the following lease terms:

  1. Operating Hours: Match your desired hours to the lease or negotiate changes prior to signing the lease agreements.
  2. Noise Restrictions: Understand the limitations. Negotiate adjustments if needed, or seek council approval for your preferred noise level.
  3. Food Safety Compliance: If required, ensure you meet New Zealand regulations and Food Standards Australia New Zealand guidelines.
  4. Lease Term: Choose a term that suits your needs. A shorter lease with renewal options offers flexibility and reduces financial risk.
  5. Maintenance Responsibilities: Verify fixture condition and determine if you are responsible for maintenance costs.
  6. Exclusive Use Rights: You should negotiate this to prevent direct competition. Ensure you have a clause restricting the landlord from leasing nearby spaces to similar restaurants.

If you need help reading over your restaurant lease, you can contact our experienced leasing lawyers to help you as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today on  0800 005 570 or visit our membership page.

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Zaakirah Nabi

Zaakirah Nabi

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