Food service lease and exclusive clauses

Real Property, Probate and Trust Journal, Fall 1997 by Halper, Emanuel B

Emanuel B. Halper*

Editors' Synopsis: To effectively negotiate use and exclusive clauses in a food service lease, the lawyers for both landlord and tenant must understand the nature of the food service industry, the potential overlap between food sales and food service tenants and among various food service tenants, and the parties' purposes in entering into a food service lease. This Article examines various types of use clauses in the context of the food service industry and suggests factors to be considered during a lease negotiation. The author illustrates the need for careful drafting by surveying the historical and practical distinctions between the many different types of food service establishments.

I. THE FUNCTION OF FOOD SERVICE USE AND EXCLUSIVE CLAUSES

A. Introduction

The lease use clause is a convenient place to both confirm and limit a tenant's right to conduct specific business activities on the leased premises. The exclusive clause, a close relative of the use clause, protects the tenant from other tenants' potentially harmful activities by requiring the landlord to prevent such activities.

Like most other use clause negotiations, food service use clause negotiations are characterized by the landlord's push to keep the tenant's business operations limited and the tenant's pull for the right to expand or change its business operations. Conversely, food service exclusive clause negotiations are characterized by the tenant's push to keep cotenants' business operations limited and the landlord's pull for the right to expand or change those business operations. The push to restrict and the pull for flexibility produce the tensions that underlie all use and exclusive clause negotiations.

A lease negotiator should think twice before copying a food service1 use or exclusive clause from a previously negotiated lease or form book. The mere presence of a clause in yesterday's lease does not mean the clause is appropriate, practical, or reasonable. Lease negotiators should not be impressed by a string of words merely because they see the words in a previously executed lease. The lawyers who negotiated the previous lease may have had little knowledge about leases and may have been considerably less experienced than the task required. Clauses find their way into leases for many different reasons. The reasons are not always sensible.

Even a use clause that makes perfect sense in one lease may be completely absurd in another. A lease is a bundle of rules governing a landlord and tenant relationship with respect to space in a specific and perhaps unique environment. Each lease must reflect distinctions such as different landlords, different neighborhoods, different space, and different cotenants.

Lease use and exclusive clauses for restaurants and other food service operations illustrate this principle. Food service establishments conduct business in many different buildings and environments. Further, the needs of food service landlords and their tenants vary considerably. These differences mandate that each use and exclusive clause for a food service lease be individually tailored to the specific needs of the parties involved.

B. Differences in Environment and Needs of the Parties

The environment in which one food service business functions is bound to be different, in some respects, from the environment in which another food service business functions. One building may be bigger than another building. Space available for one food service business may have ground floor frontage on a public street. Another might be on the fiftieth floor of a high-rise office building or in the basement. The food service business might be housed in a downtown, central business district or in the middle of a suburban, enclosed shopping center.2 The expectations of landlords and food service tenants vary widely with the location of the leased premises.

Food service use and exclusive clauses should reflect both the landlord's and the tenant's needs. Consider the needs of the various kinds of building owners. Industrial park landlords have a keen interest in a food service tenancy. Leasing space for industrial use might be difficult or entirely futile unless tenants' patrons and workers can find a decent place to have lunch. An office building owner is also concerned about facilities needed to feed the tenants' executives and customers. In areas that lack dining establishments, appropriate on-site dining facilities can transform an office building from a white elephant to an attractive facility. A shopping center owner is concerned about having appropriate on-site facilities to feed shoppers. Avid shoppers hate to interrupt their favorite pastime, but they will call it a day if their hunger becomes overwhelming. Attractive on-site food service facilities will help to keep them in the shopping center.

The needs of food service tenants also vary considerably. The food industry is not a single industry. It is a group of related industries joined by only one common characteristic: all food service businesses feed people. Food service businesses differ in many ways including how they serve people, the type of food they serve, and where their patrons eat. These differences should be reflected in their use and exclusive clauses.