Food service lease and exclusive clauses

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

Given the frequency with which food service formats change, commercial tenants in general, and food service tenants in particular, need flexibility. They lease space to conduct a successful business-not to fulfill their landlords' needs. An overly restrictive use clause that impairs a food service tenant's ability to conduct business properly undermines the tenant's part of the bargain. If a sophisticated food service tenant commits to pay rent pursuant to a long-term lease, it should bargain for the right to conduct the food service business its own way. However, even that sort of protection is often not enough for a food service tenant. A food service tenant should have the right, albeit limited, to change its business format when the current format does not work well in the marketplace.

Multi-tenant building landlords, on the other hand, need to impose reasonable limits on their tenants' flexibility. They must coordinate tenants and avoid objectionable activities that might impair co-tenants' interests. Without reasonable limits, a food service tenant's activities might be harmful to the landlord or to the development. Without reasonable limits, a food service tenant might make drastic changes in its operations that could lead to unexpected and destructive results. A tenant might decide to conduct a different kind of business from the type of business the landlord expected when the lease was executed. Accordingly, a sloppily drafted food service use clause could open the door for the conversion of a full-service, tablecloth restaurant to a less sophisticated snack bar, pizza parlor, or luncheonette. Although the conversion would not reduce the food service tenant's rent, it might reduce the building's prestige. Hence, a landlord who neglects to impose reasonable limits on tenants could suddenly discover strange happenings in his or her building.

II. GENERALIZED FOOD SERVICE USE CLAUSES

Although some landlords do not care much about what a tenant does in the premises as long as the rent is paid, detailed limits on a food service tenant's use are important for most landlords and crucial for others. A food service lease use clause should answer some important questions. It should distinguish permitted food service operations from prohibited food service operations as clearly as possible. It should also distinguish between the normal activities of a food service tenant and those of a food sales tenant, such as a supermarket, grocery store, delicatessen, or convenience store.

A. A "One Size Fits All" Food Service Use Clause

A very popular "one size fits all" food service use clause does not distinguish food service operations from each other and does not adequately distinguish a food service business from a food sales business. This popular food service use clause typically requires that the demised premises be used "solely for the sale or purveyance of food and nonalcoholic beverages for on-premises consumption."

Although this "one size fits all" formula does not permit the tenant to sell hats, ties, or panty hose, it does not limit the kind of food that may be served. Moreover, it does not prescribe how, or if, patrons will be seated or the type of plates on which the food will be served.