If you own a restaurant, bar, hotel or nightclub in NYC, you should have your commercial lease renegotiated now.

Why the urgency? NYC just passed a law which essentially invalidates personal guaranties on commercial leases for a limited period of time (Int. No. 1932-A). Specifically, if your commercial lease is accompanied by some form of personal guaranty (eg, limited, Good Guy Guaranty or any other form of personal guaranty), that guaranty would be void if you defaulted because of a government order to close indoor eating and drinking establishments during the COVID emergency, providing that the default occurs between March 7 and September 30, 2020. This is a complete game changer for commercial tenants such as restaurants because now you have some leverage to work with to renegotiate your current over-market lease. If you can’t work out amenable terms now, you would be able to terminate the tenancy and not risk any personal exposure. The Landlord would be be able to keep the security deposit but if your like most NYC restaurants and bars, that security deposit is already substantially if not completely depleted.

With the passing of this new law, Landlords are now facing a new reality with regards to the limited recourse in the event of a tenant breach. As a result, landlords should do everything they can to work with the tenant to keep them from vacating the premises. If a restaurant tenant vacates now, the premises will likely remain vacant for a year or more given the current environment, when and if a new tenant comes along they will insist on at least a few months of free rent and perhaps some landlord financial contribution towards their intended new new build-out, and finally the landlord will need the pay the broker fee on the transaction which will of course be substantial. Thus, now more than ever it makes financial sense for a landlord to negotiate to keep the current tenant in place and offer significant rent reductions (even if those reductions are short term) rather than risk having that tenant vacate the premises.

Another reason for the urgency is that this new law may not be around too long as it will certainly be challenged on constitutional grounds.

Needless to state, I recommend that you retain qualified legal counsel to engage in these lease negotiations. I have had great success in renegotiating commercial leases on behalf of my clients. Feel free to contact me to discuss. Mark B. Stumer, Esq. (212) 633-2225

Having a sidewalk cafe can greatly enhance the ambience of your restaurant, increase its revenues, and can have a number of other positive affects on your establishment.

GENERAL RULE: To legally operate a portion of a restaurant on a public sidewalk, you must obtain a sidewalk cafe license and revocable consent to use the sidewalk space from the New York City Department of Consumer Affairs. This license is renewable every two years and the license fee is determined by the size of the cafe and the location of your establishment.

The three types of sidewalk cafe’s are the: (i) enclosed cafe, (ii) unenclosed cafe, and (iii) small unenclosed cafe. Only restaurants on the ground floor are allowed to have cafes and design criteria for each type are based on the availability of free space on the sidewalk. Pedestrian traffic is a concern and there are specific measurements that must be met regarding distance from trees, parking meters, fire hydrants and other obstructions.

Regardless of the type of sidewalk cafe, (i) there must a minimum three foot Service Aisle for staff within the cafe, (ii) waiters are not permitted to serve diners from the public sidewalk, only from the designated wait service aisle, and (iii) all sidewalk cafes must maintain a minimum clear path of eight (8) feet between the outer limit of the cafe and any other object near the curb.

However, there are certain areas in New York City that are sidewalk cafe blackout zones where they simply are not permitted regardless of free sidewalk space, zoning, etc. If you are signing a lease with the intention to operate a sidewalk cafe at the premise, be sure to contact a qualified attorney or the New York City Department of Consumer Affairs Sidewalk Cafe Unit prior to signing that lease to ensure that you are not within one of these blackout zones and that the premise is otherwise suitable for such a license.

There are a two ways to buy a restaurant in New York. You can do it by purchasing the ownership shares of the seller or you can purchase the assets of the seller. Each has its advantages and disadvantages in New York but an asset purchase is almost always more beneficial for the buyer. With an asset purchase, the buyer is only assuming certain specified liabilities of the seller. With a purchase of the ownership shares (stock certificates if seller is a corporation and membership interests if seller is a Limited Liability Company), the buyer will be assuming ALL of the liabilities of the seller, known and unknown. In either scenario, a lien and judgment search must be performed on the seller’s business.

GENERAL RULE: Buy the restaurant by means of a bulk asset sale / purchase rather than a purchase of the ownership shares.

You must review the existing lease carefully to determine if the seller is able to assign it to you. If they are able to assign it, you must determine whether the existing clauses are acceptable to you including the term remaining on the lease, the rent amount, the security deposit, the personal guaranty, etc. If they aren’t able to assign the lease, the landlord needs to be contacted to inquire if they are willing to let the tenant off the hook and issue a new lease directly to you.

The purchase agreement, which will either be a stock purchase agreement or bulk asset purchase agreement, will need to state all of the terms of the sale including, but not limited to, the purchase price, the amount being held in escrow, the amount to be paid at closing, the specific assets being purchased, the date for closing, any contingencies to closing (e.g. liquor license granted to Buyer), and any personal representations and indemnifications. A Bill of Sale should accompany the purchase agreement along with a corporate resolution from the seller authorizing the sale. Remember, even with an asset purchase agreement, the buyer will be responsible for any unpaid New York State sales tax owed by the seller. This is why it’s very important to (i) file the appropriate bulk sales notice (form AU 196.10), (ii) have the seller personally represent that no taxes are owed and have him/her agree to personally indemnify the buyer for any unpaid taxes, or other liabilities, that were incurred on or before the closing date, (iii) set the closing date to occur after a tax release letter is received from the New York State Department of Taxation stating that no taxes are owed, and/or (iv) have a large portion of the purchase price held in escrow until the release letter is received from the Department of Taxation. This article is intended to give you a general idea regarding what to look out for but you should retain an experienced restaurant attorney if you are considering purchasing a restaurant or bar in New York.

When considering the execution of a commercial lease, all of the clauses must be given careful consideration. However, when taking a space for a bar or restaurant, there are certain lease clauses that warrant special attention. Following are some key clauses that are a crucial part of every restaurant/bar lease and, if negotiated properly, will allow the restaurateur/bar owner to increase the value of his/her establishment even prior to its opening and to operate with a greater peace of mind.

1) Duration of Lease: Generally, the longer the duration of the lease the better. Especially if given the ability to assign the lease with a minimum of Landlord intervention. Typically, I attempt to negotiate for a 15-year initial term with an annual increase of no more than 3%, and an option to renew the lease for another five-year term exercisable at the discretion of the restaurateur. Do your homework to determine the fair market rental value for the premise.

2) Assignment: Always attempt to retain the ability to assign the lease to a third party (e.g. in the event you want to, or are forced to sell your restaurant). The Landlord will insist that he must give his prior written consent for any assignment to be valid, but you must in turn, insist that his consent can not be unreasonably withheld, delayed or conditioned. Too many restaurateurs do not realize the importance of having the ability to assign their lease until they are at the point where they have decided to sell their restaurant. At that point, the sale of the restaurant will be thwarted because they will not have the ability to offer the lease to the potential purchaser and the Tenant will be forced to just walk away from the premise with nothing. Also be sure that the lease and personal guaranty shall void in the event of a valid lease assignment. Otherwise, you remain liable for any damages, included but not limited to unpaid rent, caused by your Assignee.

3) Liquor License Contingency Clause: If you intend to apply for a liquor license for your premise, most restaurant attorneys strongly advise that you insert an escape clause in your lease in the event that your liquor license application is rejected by the NYSLA. A fair escape clause would be that the tenant gets to void the lease in the event their NYSLA application is rejected BUT are required to pay all rent incurred (included any abated months) to the date of rejection. The personal guaranty, if any, must also void as of that date.

4) Free Rent: Attempt to get the premise rent-free until the latter of (i) the day Tenant opens the establishment to the public, or (ii) the date Tenant receives its liquor license from the NYSLA. Most landlords will agree to this request with some limitation or outside rent commencement date depending on the present demand for the premise and the caliber of the proposed restaurant tenant.

5) The Personal Guaranty: Generally, if the lease is going to be signed in the name of a corporation, all landlords will ask for your personal guaranty. Most landlords, however, will waive this personal guarantee if he/she is presented with other options that may reduce his/her risk in the event of your breach. For example, if you request that the landlord remove the personal guarantee clause and he/she initially refuses, you can offer him a larger security deposit in exchange for eliminating the clause. The larger security deposit will give him/her a greater level of comfort in the event of your default; his goal for including the personal guarantee in the first place. If you don’t have the capital to offer a greater security deposit, then you can offer to compromise and provide the Landlord with a limited personal guarantee or a Good Guy Clause which provides that you will be personally liable only up to the date that you surrender the premises back to the Landlord (a/k/a give him the keys).

GENERAL RULE: Lock in the longest lease term possible with the right to assign the lease.  Get a Liquor License contingency clause and make sure the lease and guaranty void in the event of an assignment or a failure to obtain the Liquor License.

There are many other clauses in a commercial restaurant lease and just because I highlighted the ones above does not mean that the others don’t warrant great attention.  A restaurant lease negotiation and review should be handled by a qualified restaurant attorney.