NYC Restaurant Leases, Franchise Agreements & Mall Real Estate Issues

Chain restaurants are going into vacant box-store locations, Home Depot parking lots and Sears stores as the struggling retail industry reinvents itself in the wake of the recession.

The Wall Street Journal reported Darden Restaurants Inc., owner of Red Lobster, Olive Garden, and Longhorn Steahouse, has been opening Olive Gardens in closed supermarkets and old Circuit City stores. Buffalo Wild Wings has been moving into Sears stores. And Chipotle Mexican Grill has been taking over old Starbucks locations.

Industry watchers say some of this vacant real estate has made for deals too good for companies to resist — particularly given the dirth of new construction options, liner buildings and mall openings since the crash of the real estate market.

Repurposing commercial space comes with a number of challenges. New York restaurant lawyers are best able to assist clients in protecting their investment. How long is the lease? What considerations are made for leasehold improvements? When dealing with malls, a retailer must also look at the health of the entire enterprise — as that may have the biggest impact on the success or failure of your own endeavor.

Buying a franchise also requires experienced legal help. As does dealing with a chain restaurant as a commercial landlord — these companies typically have very savvy legal counsel. Franchise considerations include:

-Initial Investment – Market Study

-Exit Planning – Business Value

-Financing Options

-Lease or Real Estate Ownership considerations

Statistics show the restaurant industry is once again growing — if not yet booming. Restaurant leases have accounted for nearly 16 percent of new leases signed thus far this year in U.S. shopping centers, according to CoStar Group Inc., a real-estate research firm.

Chipotle reports about 70 percent of new locations are going into existing commercial space. Five years ago, Darden rarely moved into commercial space but now as many as one-third of new locations are going into repurposed commercial space.

Restaurants can be excellent for shopping centers because they draw traffic — and with a record-high vacancy rate of about 10 percent, shopping centers need all the help they can get right now. However, restaurants can take up a lot of parking and their can be zoning and ADA compliance issues to resolve, among other legal considerations.

Utilities are another area where tenants or landlords may underestimate the work involved in repurposing commercial space. A department store does not often have the sewer, natural gas and other utility requirements for operating a restaurant. Understanding your responsibility as a tenant or landlord is critical to protecting your investment.

The Wright Law Firm is a business law firm located in Midtown Manhattan. Call (212) 619-1500 for a confidential consultation.