Running a restaurant - New Year new concept:
As predicted in our article on the “top five issues facing the restaurant industry” 2017 turned out to be a testing year for the casual dining market. Notable headlines from the last quarter include a number of closures from well-known high street names, a cut price rescue deal to save burger chain Byron and restaurateurs admitting they may need to change formats if they were to survive.
With the latest CGA Business Confidence Survey suggesting that “optimism among leaders in the eating and drinking out sectors has been substantially dented since the start of the year” it’s no surprise that restaurant and all-day dining operators are looking at varying their concept in order to stay ahead of the competition.
However, it is worth reviewing the terms of your lease when considering changes to your offering, including:
User Clause:
A lease will often contain specific provisions regulating the use of the property. Some user clauses may refer to a specific cuisine, such as “an Italian restaurant within use class A3…”, whilst (frequently in multi-let developments) others may go slightly further to protect the tenant mix e.g. to “a high-quality Nordic restaurant and coffee shop”.
Typically, a user clause will include a saving provision enabling an operator to vary the use, often a variation of “or such other use within class A3…as the Landlord may approve from time to time (such approval not to be unreasonably withheld)”. Whilst a landlord may ultimately look favourably upon a request to change the user clause it will take some time for consent to be documented which could have further implications for a tenant.
Menu restrictions:
In larger multi-let food led developments landlords have been known to impose restrictions on the tenants altering menus without consent in order to ensure that the offering at the development maintains a level of variety and quality.
Whilst landlords may be open to menu changes as a result of the seasonal availability of products they may have reservations where more drastic changes are proposed.
Opening Hours:
If the lease contains turnover rent provisions, where part of the rent is contingent on the success of the development and the format, a tenant will often be required to keep the premises open, and to use reasonable endeavours to maximise turnover. There are also likely to be restrictions on when the premises can close if other businesses in the locality remain open for trade.
Whilst a number of restaurants have recently moved to four-day weeks in order to combat the long hours culture in the industry and/or decrease their overheads it is worth considering whether landlord’s consent needs to be obtained.
Takeaway:
The rise in third party delivery providers has enabled restaurants, who couldn't otherwise offer a delivery service, to outsource the capital expenditure frequently linked to offering a delivery service, and increase turnover as a result. However, local authorities are keen to stop restaurants becoming takeaway led by stealth and as a result Westminster Council have introduced new rules requiring restaurants to apply for planning permission where delivery is no longer a “secondary use”.
Takeaway premises operate under use class A5 while restaurants sit within class A3, and many restaurant leases will be linked to class A3 as well as contain a prohibition on the tenant applying for planning permission without landlord’s consent.
Conclusion:
With current trading conditions forcing operators to consider their options it is important that any changes ultimately made to a concept do not put the restaurant’s biggest asset, the premises themselves, in jeopardy.
If a lease requires landlord’s consent to any of the items listed above to be obtained, but for one reason or another the consent is not obtained/documented, an operator runs the risk of the landlord taking enforcement action, or ultimately seeking to recover possession of the premises.
It is also worth remembering that a landlord will often require a tenant to pay the legal and professional costs incurred by the landlord in dealing with an application for consent so adequate provision should be made for these additional costs.
If you a restaurateur or run a food business, and would like to speak to CBG Law to discuss your existing properties or any upcoming acquisitions, then please call Alex Hutchings on 0207 436 5151 or email ah@cbglaw.co.uk for an initial conversation.