The restaurant industry is dynamic and fast-paced. It demands a lot of patience, multitasking, and quick thinking to ensure you succeed in an industry where many others fail.
Due to the many moving pieces involved in the day-to-day operation of owning a restaurant, managing effectively is rarely easy. If you want to learn how to run a restaurant as smoothly and efficiently as possible, here’s what you need to know to impress in the food and beverage industry.
Restaurant owners and managers are often expected to handle a little bit of everything, from helping out on the grill to greeting customers at the front door. In order to keep things moving smoothly, even in the height of a hectic dinner service, you’ll need to master a wide range of responsibilities, including:
- A thorough knowledge of the menu, including the ability to describe dishes accurately and make recommendations based on customer preferences
- The ability to expedite food on the line to assist in busy periods
- General kitchen prep and maintenance
- Maintaining food safety standards
- Restaurant finances, including bill pay, payroll, inventory, and budgeting
- Customer service skills and customer retention strategies
- Marketing and advertising, including creating promotions, planning sales, and running loyalty programs
- Employee management, including scheduling, floor plans and table assignments, rotations, and conflict resolution
- HR services, like interviewing, hiring, onboarding, and training
- Implementation of software and management tools
A good manager has their hands in every part of the restaurant or bar and grill, ensuring even the busiest shifts operate like a well-oiled machine. With this in mind, it’s important to understand that some manager duties are more important than others. These are the principles you need to know to guarantee a business that’s headed for success.
Effectively Managing Restaurant Finances
Restaurant finances can be a challenging quest for stability, especially when you’re balancing income streams with the steep overhead and fluctuating food costs that are so common in the restaurant business. With a comparatively low profit margin relative to other industries – casual restaurants with check prices around $15 to $25 per person boast an average margin of 3.5 percent – making wise choices can be the difference between staying afloat and going under.
A budget is a crucial part of every business, but in a restaurant, there’s not much room for error. This means it’s important to keep your thumb on the pulse of your operation on a daily basis. With so many contributing factors like labor cost, payroll cost, food cost, and inventory levels, a strict budget and a game plan for both good and bad days is critical.
Daily Business Reviews
Understanding how the well-being of your company shifts on a day-to-day basis isn’t pivotal for all companies, but restaurants rely on these kinds of little details. Even the smallest factors, like the number of servings sold of a particular entree, can make a difference. This can influence everything from future menus to next week’s inventory orders.
A daily business review communicates all of these must-have details, providing a birds’ eye view of what’s going on every single day. Generated by most modern point of sale (POS) systems, these reports allow for thorough analysis of food purchases, sales trends, payroll expenses, and customer counts – giving you all the tools you need to plan ahead and curb any forecasted setbacks. This practice can dictate scheduling, menu planning, promotions, and more, helping you drive business while keeping costs down.
Cash Flow Focus
Tracking the money you earn and spend for food is one part of the equation, but there are many more expenses that can eat away at your profit, limit cash flow, and rattle your stability. In addition to credit card tips and salaries paid to employees, you’ll also have to account for overhead expenses like rent, utilities, and supply purchases. While a line of credit or a cash advance can tide you over from time to time, you’ll need an idea of how much cash you have coming and going to best meet these obligations.
A cash flow statement can seem a little overwhelming, but understanding terms like free cash flow, operating cash flow, and net income can help you see where your restaurant stands – and help you prepare for the future when times get tight.
Managing a Menu
Your menu is essentially the outward brand of your restaurant. You can name yourself whatever you want and create an identity that exemplifies any concept, but if your menu can’t impress your customers and preserve a profit, your diners won’t come back.
The menu planning process has two distinct parts: pricing and content.
Food is at the heart of every restaurant, and a diverse, delicious menu that appeals to diners while still maintaining profitability is essential for your overall success. In determining the kinds of things that should go on your menu, first consider the basic categories found in eateries of all shapes and sizes:
- Salads and vegetarian dishes
- Red meat
- Pasta and grains
A well-rounded menu often has a few selections from all or most of these categories. How you choose to approach this will depend on the kind of restaurant you’re running – An Italian bistro, for example, will require a different menu than a casual burger joint – but a strong, flexible final product should be your primary goal. An appealing menu often has a little something for each of your customers, including lighter choices, vegetarian options, meat dishes, and an array of small plates.
When in doubt, err on the side of simplicity. A huge menu of complicated dishes is likely to require higher inventory costs and more room for error than one that sticks to the point. It’s also important to stick to a theme with your food and master it. If you want to run a burger joint, focus on mastering your burgers, don’t try to also sell pasta and sushi. It’ll be too tough to execute well and it’s confusing to customers. By mastering a style of food you develop an identity and build a brand, which is a huge part of running a successful restaurant.
Pricing your menu depends on a few key factors, including:
- The defining characteristics of your restaurant
- The kind of food you serve
- Food cost
- The dining experience, like fast casual versus fine dining
- Competitor pricing and area averages
- Operation costs for your restaurant, like payroll and overhead expenses
If you’re aiming to compete with Applebee’s in a small town, a menu full of small plates with NYC price tags isn’t going to resonate with customers. On the other hand, if you’re serving farm-to-table concepts in a decked out space, your customers will expect that your food will be priced higher than a more casual restaurant.
Be careful of pricing too high simply to cover costs: if your expenses exceed what’s reasonable in your area and you’re expecting big checks for cost coverage alone, customers aren’t likely to be pleased – or spend money with you.
One of your biggest responsibilities as a manager is likely going to be hiring staff. Here are a few tips to get you started:
Invest Time Upfront
There’s a lot of turnover in the food service industry so a thorough hiring and interviewing process can be a key tool for ensuring you build a team of high performing staff. At the very minimum, you should check personal and professional references, and you could even run background checks if you feel it is necessary.
Write Detailed Job Descriptions
Don’t make potential new staff members guess about the responsibilities of the job; tell them the skills they need and your expectations. This will help weed out the applicants who lack the experience or qualifications you desire.
Considering Hiring on Contract
How a cook or waitress performs on a lazy weekday lunch shift can be far different from how they handle a busy weekend dinner shift, so consider giving potential hires a tryout before a formal offer is made. Restaurant work has the potential to be very stressful so it can payoff in the long run if you know your new staff has what it takes to keep their cool under pressure.
Employee management can be an extraordinarily challenging task. With such a wide range of individuals who have varying backgrounds and education levels, keeping everyone organized and focused on the same goal can be easier said than done. Throw in the often hectic nature of a busy Friday night dinner shift and playing referee for squabbling staff members can quickly occupy all of your time.
However, it doesn’t have to be that way. There are plenty of management practices that you can use to unite your team and ensure that work is completed on time and up to par on even the busiest nights. Let’s take a look at a few.
Smart managers don’t allow their team members to fly solo. Instead, they encourage a collaborative effort. If one station on the line is slammed while another is empty, cross-trained cooks can work together when times get tough. Train servers on the expo line and on best practices for food running so that when one section is in the weeds, other servers can pick up the slack. When everyone knows that teamwork is the best solution, your team is more likely to do their part.
Model Quality Behavior
Restaurant management is not a “do as I say, not as I do” kind of job. In a busy establishment with a near-endless stream of obligations, a little effort on your part as a manager can go a long way.
A good leader delegates and participates rather than giving orders. If you’re going to give your team rules to follow, like restricted smoke breaks during dinner rush, a dress code or a cell phone policy, you need to do your best to follow the rules, too. Doing otherwise can breed animosity in a way that results in compromised performance and insubordination.
In a business where wages for employees often depends on assignments, like table sections or stations on the line, it can be tempting to play favorites, at least from time to time.
While there’s no arguing that good employees should be rewarded, a well-run restaurant operates in a fair way at all times. Good managers don’t favor employees who don’t deserve extra responsibility, and avoid trying to become a part of the group. Instead, maintain authority and make sure everyone gets their turn in the more desirable rotations – provided their skills are up to it.
Other Staff Management Considerations
Ensuring that your employees work well together and maintain a team-first mentality is just one part of team management. Some other responsibilities that fall on you as a manager are ensuring your team adheres to the many foodservice regulations out there, and providing educational opportunities to help your team learn new skills so they can grow professionally. Let’s take a look at each.
Provide Ongoing Training
If you want your team to perform at a high standard and have a real investment in making your restaurant a success, then you need to invest in them too. The best way to do that is by providing training opportunities.
These could be on-the-job training programs or more formal courses that take place in a classroom setting or at an institution like a culinary school. The key takeaway is that these opportunities are ways for your staff to grow professionally and advance within your organization. By giving your employees the opportunity to learn new skills and advance to leadership roles within your restaurant, you’ll reduce turnover and make your employees happier.
Maintain Food Safety Standards
Assuming your equipment is in order (we’ll discuss this in more detail below), one of the biggest areas you’ll need to focus on as a manager is ensuring that your team complies with food safety standards. Every state and some cities have their own specific regulations, so you’ll have to check with your local regulatory authority to understand your obligations.
There will likely be specific requirements for food storage and preparation that your employees will need to follow – or risk fines and closure for failure to do so. Depending on their role, some employees may need to be certified food handlers as well. With that said, the biggest lesson we want to impart is that success with food safety is largely a product of your team’s ability to maintain discipline.
Surprise health inspections mean you always need to be on your toes to ensure that your restaurant is clean and that food is stored, prepared, and served at the standards your local authority dictates. It’s easy to slack when you’re exhausted after close of business on a Saturday night, but that’s exactly when you need to hold the line.
Planning Inventory and Supplies
If you’ve ever been to a restaurant that was out of your favorite dish or was running low on ketchup, you know how frustrating it can be. As a manager, it’s your job to ensure your restaurant is fully stocked with everything from glassware to condiments at all times.
Identifying Inventory Needs
Determining the kinds of supplies your restaurant needs can be time-consuming, but the more legwork you do in the early days, the less you’ll have to do as your business grows.
Before opening your doors, you’ll need to plan exactly what you need to buy and how you plan to buy it. While there’s no right or wrong way to approach this process, making a list of all possible outcomes is highly suggested. For example, the vast majority of restaurants will need:
- Kitchen supplies and appliances
- Cooking tools
- Counters and prep spaces
- Dishes, glasses, and silverware
- Furniture for both the front and back of house
- Paper products
- Cleaning products
- Decor items
- Bar supplies
- A high-quality POS system
When it comes time to order, you need to find a name you can trust. Options are available through a wealth of industry resources, including:
While there are some risks involved, restaurateurs on a budget often turn to second-hand items, especially when shopping for expensive appliances and costly equipment.
While eBay and Craigslist can be valuable, it’s important to do your due diligence before moving forward with an unvetted source. All equipment, for example, must be NSF-certified in order to be placed in a restaurant and pass local health department inspections.
SEE ALSO:Your Guide to Finding the Right Restaurant Suppliers
Planning a Strategy
After purchasing initial inventory, you’ll need to plan ahead. Food, perishables and paper products,only last so long. Therefore, you’ll need to create an inventory management and supplier delivery schedule to ensure all menu items and other must-haves are always on hand. How you handle this process varies greatly, but can include factors like delivery company timelines, average inventory turnover and cash on hand.
Be sure to take time to physically track inventory at least twice a week to minimize waste, maximize efficiency and reduce the risk of theft. One you have these things nailed down, you can create an inventory template and other checklists to help streamline the process in the future.
Restaurant Marketing and Promotion
A well-liked restaurant with an enjoyable ambiance and tasty food is a great start, but to really attract attention and keep it, you’ll have to put yourself out there to the local market a little more aggressively.
Whether you’ve been in business for a while and you want to increase visibility, or you’re brand new and just starting out, the right approach to marketing and advertising can keep you relevant, even in a big city with hundreds of options.
Create a Loyalty Program
Fully integrated with most modern POS platforms like ShopKeep, a loyalty program can help reward regular diners and encourage first-timers to come back.
Keep it Local
Ads and coupons in local publications and on neighborhood websites can help you reach your most valuable audience: residents in your area that are most likely to dine with you.
Social media can be a wonderful low-budget marketing tool; allowing you to target posts and images toward your key demographic. From Twitter to Facebook to a killer Instagram profile, social media can keep your brand, your images and your opportunities in front of your local audience.
Mobile marketing is the next big thing, creating a compelling way to attract diners from all walks of life. With a mobile app, you can share coupons, make reservations easy and help your customers keep up with your business.
Put a Focus on Search Engine Optimization (SEO)
One of the best ways to attract customers, SEO is the practice of creating a website and online presence that’s designed to rank highly in search engines like Google. With an optimized approach to SEO that includes an emphasis on targeted keywords and local search strategies, you can ensure your restaurant ranks on the first page of Google when potential customers are looking for a place to eat.
SEE ALSO:The Small Business Guide to Getting Found on Google
Utilize Sites Like Yelp! and TripAdvisor
When area customers or even tourists visiting your area take to the web to read reviews about your restaurant, what will they see? A blank page? Negative feedback? Or sites full of glowing recommendations? Yelp! review campaigns can be very useful, helping to grow a positive presence and encouraging customer loyalty, all in one fell swoop.
Collect Customer Feedback
A key part of marketing is understanding the needs and disposition of your target customer. You want to know if they enjoyed their meal, received quality service from your team, and generally had a nice time in your restaurant.
As a manager, knowing this information allows you to respond to any concerns in real-time. You can also apply it to longer term projects. For example, a short-term fix for an unhappy customer is to offer a refund or a discount on a future visit to keep them happy. A long term approach might be to alter your menu based on feedback from customers. This kind of approach allows you to stay ahead of potential issues and craft the kind of experience that your customers can’t wait to rave to their friends about.
Software and Management Tools
Alongside dedicated restaurant management software, one of the most important tools in a restaurant manager’s arsenal is undoubtedly a POS system. This powerful resource is designed to do it all. From ringing in orders to tracking inventory and providing daily business reports to keep you up-to-date on the course of your operations.
Diverse and multifunctional, the latest POS systems can do a little bit of everything, including:
- Processing transactions and serving as a register
- Managing loyalty programs and other marketing needs
- Tracking inventory
- Providing advanced analytics
- Managing staff members
ShopKeep is an example of one of the companies that is modernizing the POS concept to keep up with the demands of today’s restaurants. Utilizing an intuitive iPad interface for easy ordering and payment processing while running state-of-the-art software provides an amazing user experience. Restaurants seeking betters tools, enhanced analytics and refined reporting will embrace both the simplicity and depth available. Perfect for restaurants of virtually any size or budget, ShopKeep provides a smooth and timely experience every diner – and manager – can appreciate.
In addition to a promising POS, there are other assets food service businesses may want to embrace, including:
Making the Most of Management
Restaurant operation and management is rarely easy, but a job well-done can be incredibly rewarding. Even when little mistakes happen, from errors in the kitchen to delayed food delivery, a thorough understanding of the principles of management can help to minimize damages and keep your business moving forward.
With the right tools by your side, like an effective budgeting strategy, a strong approach to employee management, and a POS system that can help you monitor income and expenses on a daily basis, it’s possible to turn any restaurant concept into a success.
Choosing A POS System
The right point of sale system will change your business. We tell you how to find it.
As Inbound Content Marketing Manager at ShopKeep, the #1-rated iPad Point of Sale System, Ryan Gilmore uses his extensive experience in small business technology to create educational content that helps merchants run and grow their businesses more effectively.
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Restaurant leases are typically complex and involve hard-fought negotiations. Regardless of whether you are an up-and-coming restaurateur, or an established restaurant group or franchisor, it is imperative that every restaurant tenant carefully review and consider the lease terms and its corresponding business plan before signing the same. Otherwise, the operator might find himself or herself locked into a lease that will force them to prematurely shut the doors and, worse yet, negatively affect pre-existing profitable restaurant units and the brand. In this article, I identify and highlight the importance of 12 key restaurant lease terms that every restaurant tenant should consider before entering into the same.
Premature Termination Rights & Exit Strategy
Delivery of Premises
What happens if an existing tenant fails to timely vacate the premises you intend to lease? Similarly, what happens if landlord fails to timely deliver possession of the premises with its construction substantially complete? Without the right protections, the answer is a tenant might find themselves waiting for a landlord to perform while the restaurant concept loses sales and market position, and is forced to open on an undesired date that causes lackluster sales out of the gate. At a minimum, each restaurant tenant should require landlord to diligently pursue possession (e.g., filing an unlawful detainer action) and extend any rent-free periods to track the actual delivery date. Tenants should also negotiate the right to terminate the lease if landlord’s work is not substantially completed or possession is not delivered by a certain date following lease execution. Reimbursement of out-of-pocket costs (e.g., architect fees, permit costs) incurred in pursuing the business, and the return of security deposit and any prepaid rent should also be negotiated.
Liquor License & Permit Contingencies
A restaurant tenant should always be concerned about their ability to obtain the necessary government permits, approvals, and licenses to build, alter, or otherwise operate their concept from the premises. This is especially true for restaurants planning to serve alcohol or those in need of a conditional use permit. For these reasons, restaurant tenants should negotiate a right to terminate their lease in the event these critical licenses/permits cannot be procured within a contingency period. Key items to negotiate in connection with this right to terminate is: (a) the length of the contingency period (e.g., usually tied to the amount of time it typically takes for such approval to be obtained from the particular authority (i.e., California Department of Alcoholic Beverage Control)); (b) the identity of the permits/licenses at issue (e.g., heath permits, conditional use permit, liquor license); (c) whether landlord will be granted additional time to seek the license/permit on your behalf; and (d) a termination fee (e.g., landlord’s brokerage commission).
Gross Sales Termination Right
A gross sales termination right (frequently referred to as a “gross sales kick-out clause”) grants a tenant the right to terminate the lease if their annual gross sales at the premises do not exceed a pre-negotiated dollar threshold by or during a particular time or times during the lease term. Contrary to what some might believe, a gross sales kick-out clause can be mutually beneficial. From a tenant’s perspective, it offers an exit strategy because the failure to meet the dollar threshold suggests that the particular space is not as profitable as projected. Conversely, a landlord may be persuaded to accept this termination right because the failure to meet this threshold also suggests that landlord will not recoup the rent (by and through percentage rent) that they expected to receive when it underwrote the lease. The gross sales threshold, measuring period, amount of lead-time before termination, and sum of early termination fee will be the key deal points to negotiate in connection with this clause. Typically, the comparison period will not be the first or second year. However, the tenant should seek to negotiate the measuring period to occur earlier in the term so that they have the right to terminate the lease as soon as possible. The threshold amount and termination fee are negotiated on a case-by-case basis. However, the threshold amount is frequently tied to the gross-sales breakpoint, and the termination fee is typically tied to a multiple of base rent and/or landlord’s brokers’ commission.
A tenant’s right to assign or sublease the premises is critical because it preserves one’s exist strategy and facilitates corporate growth. To this end, for starters, tenants need to make sure landlord cannot unreasonably withhold or delay their consent to general assignments and subleases. Tenants will also want to make sure the assignment/sublease language does not include unreasonable conditions to transfer, such as a clause that triggers a substantial increase in rent in the event of a transfer. Tenants should also seek to negotiate permitted assignments/subleases (i.e., transfers that do not require landlord’s prior written consent) clauses. Typical permitted transferees include affiliates/subsidiaries under common control as the original tenant, bona-fide franchisees, an entity that survives a consolidation, merger, or reorganization of the tenant or the tenant’s parent, and an entity that acquires all or substantially all of the tenant’s assets or stock or voting/membership interests. Key items to be negotiated within the permitted transferee language will include: (a) the financial wherewithal of the prospective transferee; (b) the management and operating experience of the prospective transferee; (c) definition of bona-fide franchisee; and (d) the right to share in any transfer premium in the event the transferee agrees to pay any amounts in excess of the rent payable under the lease.
Operating Protective Covenants
Exclusive Use Rights
An exclusive use clause is a covenant by landlord not to allow other occupants in the shopping center to operate a concept that would compete with the business of the tenant. For most restaurants, the need for this covenant is self-evident and will be critical to its future success. However, landlords want to protect their ability to bring in new tenants to accommodate changing demands of consumers and residents. In other words, a landlord does not want to overly restrict themselves in the development and leasing of the balance of the shopping center. The scope of an exclusive use clause will depend on the relative bargaining strengths of the parties and will be among the most hard-fought battles in lease negotiation. If a landlord is amendable, key issues to consider within this covenant include the following: (a) defining the exclusive use; (b) to whom does the prohibition apply (e.g., future occupants); (c) the scope of landlord’s obligation to protect the exclusive use right; (d) tenant’s remedies in the event of a violation of the exclusive use rights (e.g., termination rights, abatement of rent, damages); and (e) triggering events terminating the exclusive use rights (e.g., default).
It is common to overlook the benefit of holding the right to offer samples to prospective customers walking the corridors of a shopping center. It familiarizes people with the concept and attracts them in the event of indecision. It is especially important for impulse purchase concepts. If this holds true for your concept, consider requesting the right to offer free samples of your product within a certain area of the Premises (e.g., 5 feet of the lease line).
Restaurant tenants should strongly resist signing leases with a relocation clause because presumably the restaurant chose to lease the space because of its location, and the economic terms of the lease were based on the metrics of that location. Furthermore, the relocation may disrupt the restaurant’s business, goodwill, and cause it to lose customers. The new location may also be less accessible and visible. In the event landlord will not agree to remove the relocation provision in its entirety, we suggest negotiating the following items. First, limit landlord’s right to relocate your restaurant to a designated area, not more than once during the term, not during the first 12 months of the lease, and not during the months of November and December. Second, require landlord to provide 90 days’ notice, at a minimum, of their decision to exercise of this right. Third, require landlord to pay for the cost of the relocation, including construction and incidental costs incurred by you as a result of the relocation. Fourth, require the new site to be comparable to the original space. It should not vary significant in size. If the space is smaller, rent should decrease. If the space is larger, rent should remain the same. Fifth, insert language that you are not required to close the existing premises for business until a few months after the date landlord delivers possession of the new premises with substantial completion of landlord’s work. Rent during this period should also be abated. Sixth, negotiate an unfettered right to terminate the lease in the event such relocation premises is unacceptable. Seventh, negotiate the obligation of landlord to pay for the unamortized balance of the leasehold improvements in the event of termination.
A frequent concern for restaurants in a shopping center is the location of kiosks, carts, food-trucks, and other retail merchandising units (“Kiosks”)near the entrance of the restaurant. This concern is fueled by fear that Kiosks will impair customers’ access to the restaurant, block visibility of the restaurant, or make the restaurant otherwise appear less appealing. At a minimum, a tenant should require that Kiosks will not be placed in an area that “materially and/or adversely impair access to, or visibility of, the premises.” However, a tenant with greater bargaining strength should require that a Kiosk not be permitted within a certain distance of the premises (e.g., 15 feet of the lease line).
Liability & Monetary Protective Clauses
Percentage Rent Exclusions
Many restaurant leases contain a percentage rent clause that requires the tenant to pay landlord a portion of the gross revenues/sales generated from the restaurant as “percentage rent.” In negotiating these clauses, it is imperative to carefully review the definition of “Gross Revenue” or “Gross Sales” to ensure it contains customary exclusions and deductions. Generally speaking, a tenant should seek to exclude from gross sales any items which it makes little or no profit, amounts it does not retain or actually collect, and amounts not from the tenant’s core services/products. Here is a list of common exclusions and deductions we recommend considering when negotiating you restaurant lease:
- The amount of any city, county, state or federal sales, use, gross receipts, or excise taxes on sales or services rendered from the premises where such taxes are added to the selling price, are stated separately, and are paid by tenant directly to the taxing authority.
- The net amount of cash or credit refunds in fact made upon sales from the premises where the merchandise sold or some part of it is returned by the purchaser to and accepted by tenant (but not exceeding in any instance the selling price of the item in question), but excluding any amount paid or payable from what are commonly referred to as trading stamps.
- Exchanges or transfers of merchandise between restaurants of tenant, where such exchanges or transfers are made solely for the convenient operation of tenant’s business and do not have the effect of consummating elsewhere a sale which has in fact been made in, at, upon or from the premises.
- Returns to shippers, distributors, jobbers, and manufacturers.
- Sales of furniture, furnishings, equipment, fixtures or other property not constituting stock in trade and after their substantial use in the conduct of tenant’s business in the premises as permitted by this lease.
- Sums and credits received in the settlement of claims for loss or damage to merchandise.
- Receipts from public telephones, stamp machines, public toilet locks, or vending machines installed solely for the use of tenant’s employees;
- Gift certificates or like vouchers, until such time as they shall have been redeemed.
- The value of any discount given to employees, independent contractors, and employees of any management company of tenant on sales of food, beverages, and merchandise.
- Charges paid directly to credit card issuers.
- Insurance proceeds or other sums or credits received in the settlement of claims for loss, damage or destruction of or to tenant’s merchandise or trade fixtures.
- Sales at a substantial discount or non-cash donations to nonprofit, charitable or religious organizations, provided, however, that the amount of any profit to tenant from such sales shall be included in Gross Sales.
- The amount of any charges imposed directly on sales and collected from customers for the purpose of providing Affordable Health Care in order to comply with the Patient Protection and Affordable Care Act.
- The value of any promotional sales and/or complimentary meals, beverages, and merchandise to vendors, customers, guests, contractors, agents, representatives, invitees, and other like third parties.
- The value of automatic gratuities, tips, service fees, and commissions.
- The value of ATM service fees and commissions.
Common Area Operating Expenses.
Another hot-bed of negotiation in restaurant leases is tenant’s obligation to pay for a share of the expenses to operate, manage, and maintain the common areas in shopping centers. Astute tenants will try to minimize the pool of expenses to be allocated and passed through to it by: (a) excluding certain costs from the definition of common area costs or limiting the definition of common area costs; and/or (b) limiting landlord’s ability to exclude certain portions of a shopping center. Another method is to request a cap. Typically, the cap prevents the tenant’s share of common area expenses from increasing by more than a negotiated percentage over the tenant’s share of such costs in the previous year. The cap amount is frequently a fixed percentage (e.g., 3 percent), but it can also be based on a variable number, such as a specific consumer price index. Sophisticated landlords who agree to a cap will want to exclude from the cap items that are not controllable by landlord, including taxes, insurance, and utilities. They also may seek to ensure the cap on operating costs is cumulative, so that any prior unapplied carryovers may be applied in future years. We suggest requiring the cap to be calculated on a non-cumulative basis.
Personal Guaranty Burn-Offs
In today’s real estate market, landlords frequently require a personal guaranty by the controlling partners, members, or shareholders of the tenant entity. Frequently implored ways to limit liability under a personal guaranty include negotiating a burn-off clause that automatically terminates the personal guaranty in the event tenant does not commit a default (beyond applicable cure periods) within a certain period of time (e.g., three years following the lease commencement date). Alternatively, guarantors can seek to negotiate a rolling guaranty, pursuant to which they guaranty a certain amount of rent (e.g., two years of rent) for a certain period of time (e.g., first five years) over the lease term or the entire lease term itself. The success of negotiating the limitation of liability will ultimately hinge on the bargaining strength of the parties.
Security Deposit Burn-Offs
Landlords also frequently require large security deposits to protect themselves in the event of a default by tenant. In the event your landlord insists on a significant security deposit, consider negotiating a clause that requires landlord to refund a portion of your security deposit in the event you do not default (beyond applicable cure periods) within a certain period of time (e.g., three years following the lease commencement date).