When involved in a restaurant transaction, the parties (understandably) spend much time and effort on examining the health of the business and the terms of the deal itself. The buyer will, among other things, study the restaurant’s revenues and operating expenses, any potential liabilities, and the condition of the equipment involved. On the other side, especially if there is seller financing, seller will examine the creditworthiness and financial wherewithal of the buyer, as well as their experience in running such a business. And both sides (of course) will focus great energy on negotiating the purchase price.
Often forgotten in this exchange of information and examination of risks is the landlord. The landlord is a necessary party to almost all restaurant deals, because almost all restaurant leases contain provisions that require the landlord’s consent to the assignment of the lease from the seller to the buyer. If the landlord does not provide that consent, the deal is off – even if the seller and buyer are in complete agreement on all terms.
For this reason, if you are considering listing your restaurant for sale, you should consult with your landlord to determine (or at least get a sense of) the conditions it might place on any such assignment. Is there a restriction on a change of format (e.g. the type of food)? Will the landlord require the new tenant to meet some threshold of financial strength? Determining these factors early on can save you from wasting time with a prospective buyer that has little or no chance of being approved by the landlord. And if you are a prospective buyer, among the first things you should ask the seller is if he has had these conversations with the landlord. That question may save you from spending time and money (i.e. lawyer’s fees) to negotiate a transaction that will be snuffed out by the landlord down the road.
So the lesson here is that, while it may take two to tango, it often takes three to finalize a restaurant deal.
Demonstrating the critical importance and growing complexity of the legal issues surrounding restaurants, the Washington Lawyer dedicated its September 2016 issue to the intersection of the restaurant business and the law. The cover story was entitled Behind the Kitchen Door and featured interviews with local restaurateurs, including celebrity chef Mike Isabella, and our founder, Sean Morris.
Among the things Sean was asked about was what the first thing an aspiring restaurateur should do when considering opening a restaurant:
Sean Morris, founder of the Morris Law Firm, LLC, in Bethesda, Maryland, and an expert in restaurant law, urges aspiring restaurant entrepreneurs to talk to a real estate broker and a lawyer. ‘Those two people can enable you to survey the legal landscape and the actual physical landscape of what the local real estate market is,’ Morris says.
Sean was also asked about upcoming changes to DC’s zoning laws as they relate to fast casual restaurants, liquor licensing issues, and the pitfalls of using social media to boost your restaurant’s profile. The magazine also picked up on Sean’s advice to shore up the four most important legal relationships that you will encounter in your restaurant business and reprinted our blog post of the topic on the DC Bar’s website.
Finally, we were very proud to have Sean featured in the magazine’s Member Spotlight for September, which not only included a full page profile, but provided Sean with the opportunity to tell the story of why he was drawn to a practice in restaurant law:
Through college, through graduate school, throughout my pre-law school days, I always worked in restaurants. I washed dishes. I bussed tables. I waited tables. I’ve worked in kitchens. … I came back to this industry because I knew it and because I loved it. It’s an industry where there are a lot of good people working really hard who could use just a little bit of help, particularly from someone who knows their business.
If you are interested, you can check out the full digital edition of the issue here.