WolfePack Wisdom

South Florida is no longer just a destination to escape snow-filled winters. With relaxed COVID-19 restrictions and favorable tax laws, New Yorkers and other northerners have flocked to South Florida, relocating their families and businesses. As Miami becomes ‘Wall Street South’ and an influx of tech moguls move to South Florida, restaurant operators are opening locations in Florida, following the migration of renowned restaurants such as Le Bilboquet, Cote, Carbone, and Freehold.

While other parts of the country are grappling with closures, South Florida landlords have an influx of tenants waiting to occupy vacant restaurant spaces. Restaurateurs, however, looking to relocate to South Florida should be aware of the five lease provision trends when entering into a new lease:

1. Cleaning Specifications. Since the onset of the pandemic, hygiene has become a paramount concern. Deep cleaning all touchpoints in both common areas and restrooms have become a priority. Landlords are requiring operators enter into separate service-level agreements and to provide detailed cleaning specifications outlining cleaning and sanitization procedures. In fact, many landlords are requesting assurances from operators that they are making diligent efforts to mitigate infections. These assurances are usually stricter than those already mandated by local and state regulations.
2. Subleasing and Assignment. While subleasing and assignment provisions are typically included in commercial leases, operators should request broad sublease and assignment rights given the near-term economic uncertainty. With the rise in pop-ups and ghost kitchens, landlords have attempted to limit assignment and sublease. Therefore, operators should negotiate for the ability to sublease and assign the kitchen space.
3. Excess Rent Clause. A common but often forgotten provision in lease agreements is the excess rent clause. This clause requires a tenant pay their landlord a certain sum of money received from a buyer or assignee in the event that the tenant assigns the lease or sells the business. This provision often results in a tenant forfeiting all of its profits from the assignment or sale of the business to the landlord. Due to the increase of operators taking over existing spaces, landlords have resorted to excess rent clauses to control tenant turnover.
4. HVAC Specifications. Customarily, landlords provide premises with a working air conditioning (HVAC) system or an allowance to modify the HVAC system. Recently, landlords and tenants have requested that HVAC systems be upgraded to include increased filtration and a UV light, reducing the spread of infection aerosols. Robust HVAC systems and provisions governing airflow and ventilation maintenance will soon become the new norm.
5. Co-Tenancy Provisions. Co-tenancy provisions have historically been included in leases for mall and shopping center tenants. Co-Tenancy provisions require a landlord to maintain a certain level of occupancy or a certain percentage of tenants in the center to be open. Failure to maintain co-tenancy figures allows a tenant to pay a reduced rent and can result in a lease termination. Due to the pandemic, landlords have begun to push back on co-tenancy provisions citing government shutdown uncertainty. Tenants, however, should be wary of removing such protections as co-tenancy provisions are intended to maintain a certain level of foot traffic in a center.

These lease provision trends are likely to become part of the new norm when negotiating lease agreements with landlords. With an in-depth knowledge of the various legal issues related to restaurant operations, Wolfe Pincavage, LLP, can provide guidance when entering into a new restaurant lease and share best practices on the strategies landlords and operators can implement to mitigate risk.