Real Estate, Leasing & Development
Real estate is the foundation of every hospitality business — and the lease or purchase agreement governing that real estate is among the most consequential documents a restaurant or hotel operator will ever sign. The letter of intent stage is where the business deal is made; the lease is where it gets documented. I represent hospitality clients from the first site visit through lease execution, and in real estate acquisitions, portfolio structuring, and hotel property transactions.
- LOI drafting and commercial lease negotiation from site selection through execution
- Rent, free rent periods, tenant improvement allowance, and landlord work letter negotiation
- Personal guarantee limitation and good-guy guarantee structures
- Assignment, subletting, and change of control rights — essential for any eventual business sale
- Renewal, expansion, and termination option structuring
- Force majeure and business interruption protections
- Site due diligence: zoning, certificate of occupancy, liquor license eligibility, violations review
- Ground lease structuring and negotiation
- Real estate holding entity structuring and OpCo/PropCo separation
- Sale-leaseback structuring and 1031 exchange coordination
- CMBS and conventional loan counsel for hotel acquisitions
What are the most important provisions to negotiate in a New York restaurant lease?
The provisions that matter most in a New York City restaurant lease:
- Base rent, free rent periods, and escalation schedule — Is the opening free rent long enough to cover buildout? Are future escalations tied to CPI or fixed, and are they survivable?
- Tenant improvement allowance (TIA) — How much is the landlord contributing to buildout? What are the conditions, construction approval process, and repayment obligation if the lease terminates early?
- Personal guarantee — Is it unlimited, or limited by time, amount, or a good-guy burn-down? A lease that starts with a full personal guarantee should have a mechanism to reduce it after on-time rent payment.
- Use clause — Is it broad enough to accommodate menu changes, concept evolution, and the addition of takeout, delivery, or catering? A narrow use clause gives the landlord leverage later.
- Assignment and subletting rights — Can you assign the lease when you sell the business? Assignment rights are essential to exit value.
- Renewal options — At fixed rent or fair market value? Is there a dispute mechanism for the landlord’s fair market value determination?
- Liquor license contingency — An exit right if the liquor license cannot be obtained for the premises.
What is a personal guarantee in a restaurant lease, and can it be negotiated?
A personal guarantee makes one or more individual owners personally responsible for the lease obligations of the business tenant if the business defaults. NYC landlords routinely require unlimited personal guarantees from all principals — meaning if the restaurant closes, the guarantors are personally liable for the entire remaining rent obligation, potentially millions of dollars on a long-term lease in a high-rent location.
Personal guarantees are negotiable — especially before the lease is signed. Common modifications: a good-guy guarantee (limits personal liability to the period through the date the tenant surrenders the premises in good condition); a time-based burn-down (the guarantee reduces or terminates after a specified number of years of on-time payment); a dollar cap; or removal of certain guarantors after a period. The leverage to negotiate these modifications exists at the LOI stage and diminishes substantially once the lease is signed. Engaging legal counsel before signing the LOI — not after — preserves the maximum negotiating position.
What should a restaurant owner investigate before signing a lease for a new location?
Legal diligence before committing to a New York restaurant lease should include: zoning compliance review confirming the proposed use is permitted for the location; certificate of occupancy review to confirm permitted uses and identify any open violations or permits that could delay or prevent buildout; review of existing DOB, ECB, and fire safety violations that could become the new tenant’s problem; liquor license eligibility assessment including proximity to schools and houses of worship; sidewalk café permit availability if outdoor seating is contemplated; and landmark or historic district status review if it could affect alteration plans. Each of these can reveal facts that either change the deal or kill it — and they are substantially less expensive to discover before signing than after.