What are Your Options? Negotiable or “Market Rate” Lease Renewal Provisions

timetorenewIn a changing real estate market, especially one with rising commercial property values and rental rates, whether you have a renewal option in your commercial lease and the terms of any such option can be critical. It is highly preferable to have an option provision that specifies the rate of any renewal, e.g. some set percentage over the last year of the initial term. It is not uncommon for a lease to say the renewal will be at “market rate” or something similar, then it will be subject to negotiation and agreement between the Tenant and Landlord, leaving the renewal subject to negotiation and agreement between the Tenant and Landlord.  Of course, when this is the case, it largely turns the renewal “option” into simply an exclusive right to negotiate and takes significant control away from the tenant.

If your lease has a market rate or negotiable option provision, here are a couple of things to keep in mind:

  • First, see if there is any provision in your lease that requires the landlord to give you notice of its proposed renewal terms in advance of the date by which you have to give notice of your intention to renew. If there isn’t any such requirement, still go ahead and request that the landlord let you know as much in advance as possible what renewal rate it will be requesting. That will give you a little more time to negotiate with the landlord, or will give you a heads up that the landlord may be looking for much more than you are willing to spend. If you will need to move at the end of your lease, having that bit of extra time may be invaluable.
  • Second, understand that you really have two deadlines: the actual end of the lease, and the date after which it will be impossible for you to find new space and have it ready to move into if you can’t work out a deal with the landlord on your renewal. Is that 6 months before the end of the lease? 9 months? More? You need to have a good sense of this, because if you let that deadline pass, you may be stuck taking whatever deal the landlord is offering because you don’t have anyplace else to go. With restaurant leases this timing factor is critically important because the permitting and buildout requirements of new restaurant space will require much more lead time before any move.
  • Finally, pay close attention to your lease’s holdover provisions. Almost all commercial leases I see in my practice contain drastic rent increase provisions if you stay in the space beyond the end of your lease, with it being common for rent for any holdover period to be 200% the last year of the initial term.  If that is the case in your lease, you must make sure, if you cannot negotiate the renewal term, that you are ready to move when the initial term of the lease is up.

Of course, many of these terms are subject to negotiation at the time you sign your lease and that is the best time to address them. But if you must deal with them later, you should work with your real estate lawyer to ensure you are able to renew your lease on favorable terms or, failing that, have as much time as possible to find a new space.

How a Glitch in Local Liquor License Laws is Hurting Fast Casual Restaurants

beer tapsI’ve written here before about how one of the distinguishing and appealing elements of fast casual restaurants is that, unlike more traditional “fast food” outlets, they often serve alcohol. Most often, however, these restaurants do not have a full bar and only want to serve beer and wine. That more limited offering can make things easier for the restaurant owner because they can simply obtain a beer and wine license, and not have to bear the heightened scrutiny and oftentimes greater regulatory burdens that come with the right to sell hard liquor.

Here in Montgomery County Maryland, where I do a significant amount of work, it doesn’t quite work that way due to a glitch in the local liquor laws. That glitch is this: an individual can hold up to ten full liquor licenses – i.e. those for beer, wine, and liquor – but are restricted to only one beer and wine license. Of course, very often fast casual restaurants have more than one location in a given jurisdiction, and several of my clients have more than one here in Montgomery County. If they want liquor licenses for all of their stores, the law requires them to apply for and obtain full liquor licenses, even if they only want to sell beer and wine. And while that full liquor license gives those restaurants the option to sell drinks containing spirits if they’d like, it also comes with it a much higher licensing fee and more burdensome administrative and regulatory requirements.  While many proceed anyway, and take these burdens on, others decide it is not worth it, and forego alcohol altogether.

Why this inconsistency in the law exists is difficult to say, but it appears it may simply have been an oversight as the laws were amended over the years. Indeed, for years full liquor licenses were by far the most desirable to restaurant owners and very few were interested in selling only beer and wine. Thus, when lobbying efforts were made to expand the number of licenses an individual could hold, the focus was on full beer, wine, and liquor licenses, and no changes were made to the laws regarding the more limited beer and wine licenses. As fast casual continues to boom, however, it would seem that greater attention needs to be given to this inconsistency, and that the right to hold beer and wine licenses be expanded in the next legislative session to meet the demands of this growing trend in the restaurant industry.

Listen: Founder Sean Morris Featured on the Law Entrepreneur Podcast

Our founder and principal attorney, Sean Morris, was recently interviewed by Neil Tyra for his popular new podcast, The Law Entrepreneur.  Take a listen here as Sean speaks to Neil about, among other things, why he decided to build a practice focused on the needs of restaurant owners — or, as Neil puts it, how he became the Restaurant Lawyer.

You can find the iTunes link, as well as the archives to Neil’s excellent podcast here.  Check it out.

12 Questions to Ask (and Answer) Before Signing Your Restaurant Lease

As I’ve written here before, perhaps the document that will have the greatest impact on the success of your restaurant will be your lease. It sets the terms of your relationship with your landlord, governs the manner in which you may use your space, and determines what you must pay – each and every month – just to maintain the right to open your doors. For all too many restaurants, whether they succeed or fail is predetermined at the moment the lease is signed.

But leases are also complex documents, which are drafted by the landlord, and can be confusing to tenants without a strong legal or business background. When reviewing a lease, it can be hard to know where to start. To provide some guidance, here is a list of some of the questions you must ask – and have answered clearly in your mind – before you execute a lease and commit yourself to its terms. This list is not exhaustive, however, nor is it intended to replace the guidance of an experienced restaurant leasing attorney. With that said, here are some of those key questions:

1.   Who is the Tenant?

You may be saying to yourself, “what does he mean, who is the tenant? Aren’t I the tenant?” Well, maybe not. Most often, tenant restaurants will form a new entity for their restaurant business (a limited liability company, or LLC, for example) and it will be that entity that is the actual tenant on the restaurant lease. Signing a lease on behalf of an entity provides an extra layer of liability protection for the individual owners of the business (subject to the guaranty – see below) if the business fails to meet any of its lease obligations, such as if it cannot pay its rent. If you are the tenant on the lease individually, however, you will be personally liable for all rent and other obligations under the lease. Similarly, if you are a multi-unit operator and sign all your leases in the name of the same entity, rather than create a new entity for each location, you put the assets of all your restaurants at risk if one defaults on its lease.  So make sure you understand when you sign your lease, who is responsible if things don’t work out.

2.   What is my personal obligation on the guaranty? 

The corollary to the explanation above to question 1 is that, if the tenant is an LLC, the Landlord is going to want some real live person to “guarantee” that the terms of the lease will be followed, and be liable on the lease if the LLC cannot meet its obligations (which is often the case if the restaurant goes out of business). This “personal guaranty” as it is known can, however, be limited such that the guarantor is not liable for the full extent of any damages caused to the landlord by the tenant’s breach of the lease. Among these limitations are that the guaranty is capped at a certain amount (e.g. 24 months of base rent), or that it “burns off” after a specified period of time such that there is no further guarantor liability if rent is paid on time for some specified period. Not all landlords will agree to such limitations, and much will depend on who the tenant is, but as with Number 1 above, understanding the extent of the guaranty (and seeking to limit it where possible) is critical to understanding your personal exposure and risk in signing the lease.

3.   Can I get a liquor license for this space?

Many restaurant owners are surprised to know they can’t just get a liquor license anywhere. Many locales have strict limits on where businesses that sell alcoholic beverages can be located, and others have a cap on the number of new licenses they will issue. If you sign a lease without understanding how these local laws may effect your planned business, you could be placed in a situation where you are either (in the former situation) unable to get a liquor license at all, or (in the latter) be required to spend significant and unanticipated sums to purchase an existing license. In either case, if your restaurant depends on a liquor license for its survival, this miscalculation can doom your restaurant from the start.

4.   When do I have to start paying rent?

Unlike residential leases, where you start paying rent as soon as you move in, many restaurant leases will provide you with several months before you have to make your first monthly rent payment. This delay is to permit you to do whatever buildout you may need to do for your restaurant, and perhaps even give you some time to get up and running before you must start meeting that monthly rental obligation. How long you will be permitted before you have to start paying will of course be a key topic of negotiation, and every extra month will make a big difference in whether you get off on the right foot or are playing from behind right from the start.

5.   What do I really have to pay every month? 

Of course you have to pay your monthly rent. But what else? If your restaurant lease is what we call a “net lease” you will have to pay your share of other expenses incurred in the operation and maintenance of the property. These charges, which are often called “pass throughs,” because the landlord pays them directly and passes them through to the tenant as an additional monthly cost, can include property taxes, common area maintenance (CAM) costs, and insurance – and in the case of a “triple net” or NNN lease will include all three. As these costs can be significant, and can change from year to year, it is critical to your monthly budgeting to understand as precisely as possible how much you should expect to pay in pass-throughs every month. You do not want to sign a lease for what you think is a reasonable rent, only to find out that the pass-throughs add another 50% to your monthly obligation.

6.   Do I owe my landlord a share of my sales?

You may want to consider this question 5a, because as with the above, it relates directly to what you will really be paying every month. That is because, in addition to pass-throughs, your lease may also require you to pay to the landlord some percentage of your sales every month in the form of “percentage rent.” This extra rent effectively allows your landlord to share in your success (but good luck getting him to reduce your rent if you are struggling). Sometimes, this percentage rent only kicks in after a certain sales threshold is reached, but in any case, a restaurant tenant absolutely must have a firm grasp on when he may owe percentage rent, how much, and what reporting and document requirements he may have to support the sales figures used to calculate this extra rent.

7.   Do I have an exclusivity provision?

I always encourage my clients to request that their restaurant leases contain a provision that states the tenant has exclusive rights to sell a certain style of food – e.g. that tenant will be the only one in the shopping center who can sell fast casual Mexican or sit-down Mediterranean or carry-out Chinese.  If you do not have an exclusivity provision, there may be nothing stopping the landlord from leasing to a competing business who sells the same type of food you do, just because the landlord may think they make a better tenant, or if they just need to fill the space.  For that reason, such a provision is strongly advised. And more than that, if your lease has such a provision, it is critical that it also protects your exclusive use by imposing real financial penalties on the landlord if your exclusivity is violated.

8.   Can I change the concept of my restaurant if it is not working?

Again, we have a corollary. One of the reasons landlords will agree to include exclusivity provisions in the lease is they have a strong interest in ensuring the proper mix of tenants in their shopping centers. That is to say, the landlord may not want two fast casual Mexican places. But with that interest in ensuring a good mix of tenants, comes with it an interest in controlling the type of offerings their tenants provide. As such, landlords generally will include in their restaurant leases a use provision that sets forth the type of restaurant the tenant is going to operate, and which requires that the tenant not deviate from that use during the term of the lease. Or, at least, that the restaurant does not do so without the landlord’s approval.

9.   Can my landlord make me move to a new location in the shopping center?

Like most of us who own property, landlords want to preserve maximum flexibility with respect to how they use their property – and long term leases can get in the way of that. To deal with that fact, landlords will often request that relocation provisions be included in restaurant leases such that if they want to redevelop the portion of the shopping center in which your restaurant is located, they can move you to another location. While that desire may be reasonable, the lease terms must also be reasonable and ensure (among other things) that the new space you are moved to is similar (in size, access, visibility, etc.) to that from which you are being moved, that your business will not be unduly interrupted by the move, and that you are given a chance to participate fairly in the selection of the new space without fear that the landlord will simply kick you out and terminate the lease if you do not agree.

10.   What happens if I am late or miss a rent payment?

This is a biggie. You know you have to pay your rent on time, right? But what actually happens if you don’t? The answer is, as one of my law professor liked to say, “IAD. It all depends.” And on what does it depend? Many things: how late you are; whether you’ve been late before; what your relationship is like with your landlord; and, for many, who your landlord is (some are bigger sticklers than others.). Like anything else, however, what actually will happen is less important at the time you sign your lease than what could happen. And what could happen will depend on only one thing: the terms of the lease.

In many leases I see what could happen is the nuclear option: termination and eviction. After one missed or late payment, you ask, really? Yes, really. In these leases, the landlord reserves the right to terminate the lease and evict the tenant if one single rent payment is late by defining such a late payment as a default under the lease. You’re late, you’re in default, simple as that. Now you are at the landlord’s mercy, as all default remedies available under the lease are now in play. A better option? Take a good hard look at those default provisions and do all you can to get some wiggle room in the event of a late payment – notice and an opportunity to cure being the most obvious. Sure, maybe the landlord won’t evict you for one late or missed payment. But the fact that he could should be enough to make you worried.

11.   Can I assign this lease if I want to sell my restaurant?

Ten years, which is the length of most restaurant leases I see in my practice, is a long time. People’s lives change a lot over ten years – families grow, people relocate, health deteriorates, businesses struggle…. Maybe after a time, running a restaurant just does not seem like the best option for you anymore. But if you are tied to a long-term restaurant lease, what do you do? For many, a strict restriction on assignment (the process by which someone assumes your obligations on a lease) seems like a trap from which escape to another life in impossible. Thankfully, that is not altogether true.

Generally, a landlord wants a good tenant who is invested in their business and wants to and has the capacity to be successful. If that is no longer you – for whatever reason – and you bring to the landlord someone who wants to buy your business and take over the lease, most landlords will be receptive (even if the lease has a strict prohibition on such assignments). That does not mean, however, that you should ignore such prohibitions at the negotiation and signing stage. You should still make sure you understand the limitations on assignment built into the lease and, to the greatest extent possible, do what you can to carve out the broadest allowance for such assignment that you are able. The less you are dependent on your landlord’s good graces, particularly if you meet with times of struggle, the better.

12.   What are my renewal options?

Again, ten years is a long time and a lot can change over that time. Not the least of those changes is the value of real estate and the associated market rates for rental property. If you were a pioneer and your restaurant is now located in an area where people are moving in and rents are skyrocketing, the terms on your option to renew (assuming you have one) can make the difference between whether you can stay (and benefit from your foresight in opening in this hot neighborhood), or have to find new space, perhaps at a higher rate or in a less desirable neighborhood.

The determining factor may be whether your renewal option is on the same terms as the primary term of the lease (e.g. a fixed annual percentage increase) or whether it is at market rate, which can lead to a whole new round of negotiations with the landlord and is, in many ways, not a real renewal at all. So pay attention to those renewal terms and, for goodness sake, certainly keep in mind when you have to provide notice of your intent to renew. You don’t want to negotiate favorable renewal terms at the time of your lease, only to lose that benefit by letting your renewal deadline to lapse.


Again, this list is not exhaustive and others will no doubt be important in your restaurant lease negotiation (e.g. who pays for repairs to the building or its systems? what rights do I have to use the sidewalk or patio?), but I hope it begins to convey the range of issues in play. I hope it also conveys to you that the assistance of an experienced restaurant leasing lawyer may be advisable, if not an absolute necessity.

If you need help answering one of these, or any other question, as you review and negotiate your restaurant lease, please give us a call.

Yes, Your Business Needs an Operating Agreement


Imagine this scenario:

A couple of years ago you partnered up with a few associates and started a new restaurant business. Because you did not know much about the business, you opted to take a background role, with your contribution largely being financial. You trusted your partners, who had experience as chefs and restaurant managers, to run the day-to-day operations of the business. After a few rough months, the restaurant started doing really well and is now thriving, but you have not really seen much in the way of a return on your investment.

You have started to wonder and have asked your partners whether you will start seeing some distributions any time soon. You also called a local lawyer you know who has experience with small businesses and asked her for some advice. You and she scheduled a meeting, and she asks you to bring a copy of the company’s operating or partnership agreement. You check your files and review your emails from a few years back only to discover there is no such agreement, that you and your partners never entered into one. You were too excited to get going and didn’t want to spoil the good vibes between you all.

You mention this all to the lawyer when you meet with her, and explain the overall situation, before asking her, “What are my rights?” Her answer (not in so many words, and perhaps a bit more gently): “Who the heck knows?”

While it is true that the corporate and business law of the state you live in may provide some answers, the lesson of this imaginary story is this: It is impossible to overstate how important a good operating agreement** is if you are embarking on a restaurant (or any business) venture with anyone other than just yourself. With the possible exception of your restaurant lease, it is probably the most important document you will deal with. That is because, while your lease may be a key factor in whether you succeed or not, your operating agreement will be the determining factor of what happens if you succeed or not. And, as I tell my clients, sometimes the worst thing that can happen if you do not have a good operating agreement is that you do succeed, because then there is actually something worth fighting over.

So, why do you need an operating agreement? It is, among other things, to answer the most critical questions about how your company will be run:

  • Who has primary responsibility for managing the day-to-day affairs of the company?
  • What are the manager’s duties, obligations, and responsibilities?
  • Which matters get put to a vote of the members and which are left to the discretion of the managers?
  • What happens if the manager of the business is failing in his duties and needs to be removed?
  • How are profits of the business distributed to the members?
  • What happens if a member of the company wants to leave and be bought out?
  • How does the company raise more money if it is needed?
  • What if the company wants to take on investors as new members?
  • What happens if the company gets purchased?
  • What happens if the business fails?

The time to get on the same page with your business associates regarding these questions is at the start of the business, not when they come up later on.  Because if you wait until then, and you do not have a good operating agreement, the answer to each of these questions can be the same as the one the lawyer gave in the story above: “Who the heck knows?”


** NOTE:  I’ve used the terms “operating agreement” and “members” in this post because most of my clients structure their businesses as limited liability companies (LLCs), but the same would be true of a partnership or shareholder agreement if you were structured a partnership or close corporation.

The Facebook Trap: Social Media, Solicitation, and Securities Law

You have a great idea for a new business – it is a fantastic new restaurant concept that incorporates some of the hottest trends in the industry, with a new twist that is uniquely your own. You put together a business plan, determine how much money you will need to get it off the ground, and then prepare a deck of slides for potential investors. Then you log into Facebook and post the news of your exciting new venture and tell all your “friends” that they should contact you if they are interested in investing.

Guess what? You likely have just engaged in what the Securities and Exchange Commission deems a “general solicitation” for investment. What does that mean? You have inadvertently significantly restricted the pool of investors who will be eligible to invest in your restaurant business. Whoops.

To understand why this is, you must understand the concept of “accredited” versus “non-accredited” investors, and also understand the role the SEC assumes in protecting the latter in particular from dubious or even fraudulent investment schemes. Put in simple terms, an “accredited” investor is someone with a high income and/or net worth and who, according to the SEC, is sophisticated enough to make wise investment decisions, or at least wealthy enough to not be ruined by an unwise one. Because of this purported sophistication and wherewithal, accredited investors are permitted to invest in business ventures that non-accredited investors are not.

Among those ventures are those with investment offerings that the proponents of the business have advertised to the general public. This is known as a “general solicitation.” If the business proponent wants to engage in such general solicitation, and also not have to register their securities formally with the SEC, they may only accept investment from accredited investors. Non-accredited investors will be completely shut out and barred from investing. So that Facebook post, which is probably intended to reach old friends, associates, or college buddies who would enjoy investing and supporting you in your venture, could have the unintended consequence of making it impossible for those precise people to actually invest – unless they also happen to be wealthy.

So, you ask, why is a Facebook post considered a general solicitation? Aren’t I just making it known to my friends and family? Well, while the answer is not as clear as we may like, the SEC seems to understand that what Facebook considers our “friends” and LinkedIn considers our “contacts” is significantly broader than the traditional meanings of those terms. Indeed, the SEC agrees that a communication made only to those people with whom we have a preexisting relationship would not constitute a general solicitation. Rather, it is only when the communication gets made in a manner that the target audience is not specifically limited and controlled that it rises to a general solicitation. In most instances, however, given the nature of social media and the inherent inability of users to strictly limit who sees their posts, the default position is likely to be that a social media post inviting investment in your startup will be deemed a direct solicitation.

So think hard before you hit “post” or “publish” on that Facebook posting. (Which, come to think of it, is actually a pretty good policy in general.)

Last Call for Georgetown Liquor License Moratorium

Starting next week, for the first time in 27 years, restaurants in Georgetown will be able to apply for new liquor licenses.  The District of Columbia’s Alcoholic Beverage Control today voted not to extend its decades-old moratorium on liquor licenses for restaurants, which had been set to expire on April 8.  The moratorium was instituted in 1989 in response to the trash, noise and (some would say) mayhem that came from Georgetown being not only one of the city’s top nightlife destinations, but also home to (my alma mater) Georgetown University and its thousands of students.  In the ensuing years, however, some have blamed the license cap for Georgetown lagging behind the rest of the city in attracting new and exciting restaurants, which have proliferated in other parts of the District.

Some have questioned whether the lifting of the moratorium will make much of a difference, given the number of dormant liquor licenses that are in safekeeping with the District’s regulatory agency.  Those licenses were being held, however, because many of the holders were seeking to extract a significant (think mid-five figures) fee in exchange for a transfer.  That might have been cost prohibitive for smaller operators – particularly in the fast casual space.  Now that gatekeeping expense will be no more.

As was the case in Adams Morgan, which had its own moratorium on restaurant liquor license lifted in 2014, the moratorium on new tavern and nightclub licenses in Georgetown will remain in effect.  Next up will be the cap on new licenses in Georgetown’s neighbor, Glover Park, which is set to expire on May 3 of this year if not extended by the Board.

If you are interested in the possibility of applying for a restaurant liquor license in Georgetown, please do not hesitate to contact our office.

Is Granting Equity to Early Backers of Your Business a Good Idea?

The New York Times had a terrific story this weekend on a matter I see all the time in my practice: entrepreneurs who hand out equity in their businesses at the startup stage, then years later want to buy those equity-holders out, but lack the resources to do so. The piece opens with the story of Brad Sacks, a food entrepreneur in Akron, Ohio:

BRAD SACKS brought in two family friends who were older and wiser when he started his sauce company, More Than Gourmet, in 1993. They didn’t invest any money, Mr. Sacks said, but for their help, he gave the men half of the company.

Two decades later, the company, in Akron, Ohio, was booming, with lines of demi-glace and cooking stocks that were being used at the Capital Grille and the Hilton Hotel chain and sold at supermarkets like Wegmans. But Mr. Sacks said the two original partners were reaping the benefits of his work even though they were no longer advising the business.

The story goes on to describe how, when Mr. Sacks tried to buy his “partners” out, they (not surprisingly) resisted. And, while a deal was ultimately reached, the negotiations “got ugly,” and then Mr. Sacks had to figure out a way to come up with the cash to actually buy his partners out of what had become a highly successful business.

This situation is common in the world of small business: an entrepreneur believes he lacks something that he needs to get his business up and running – expertise, experience, relationships, financing – and in exchange for obtaining that “something” from someone else, grants that someone equity in his business. After all, money is tight in the early days of a business, and granting equity seems like it doesn’t cost anything. But then the company becomes successful, and starts making money, and then…. well, then it sure does start costing the founder money, because he has to share the profits with those other equity holders.

Now, if the company really could not have gotten off the ground without the assistance of these early backers, then perhaps no one can argue with those supporters reaping the benefits when the company really takes off. But I see quite often that such is not the case. Many times, a company’s founder could have gotten the same “something” from another source (such as a small business loan rather than investment financing), or the granting of equity was not even necessary to achieve that something (such as granting equity to a chef or bar manager who is also earning a salary in exchange for the expertise they bring). Then there is the situation where the equity is granted, but the “something” is never really provided – or is not what the founder expected it to be (such as a head of sales who doesn’t make any sales, or an industry consultant who actually doesn’t know the industry as well as he said he did).

We regularly advise our clients on ways to address these issues before they grant equity in their businesses. And if they do still decide to do so, we prepare their operational or investment documents in a way to ensure that they get what they bargained for and have maximum flexibility in the future when it comes to the management and growth of their business. After all, what helps you get off the ground at the startup stage, should not be an anchor around your neck later.

Landlords Come and Go. It’s What Your Lease Says That Matters Most.

Commercial leases, like most contracts, are subject to interpretation. Clauses and terms that may seem clear at the time they are drafted can later become ambiguous, or subject to more than one understanding, especially when words on paper become applied to real life situations. Or the terms may be unclear on their face, and such lack of clarity is simply not recognized until the lease has commenced and the tenancy begun. This reality is something that all business people and their lawyers must deal with, and must understand is part of doing business. Oftentimes landlords and tenants, given the passage of time and over the course of an extended term of dealings come to an understanding on the meaning and applicability of certain lease terms and engage with one another pursuant to that understanding. In the best circumstances, the landlord and tenant work together to ensure neither party is deprived of the benefit they believed they were obtaining at the time of the lease.  It is just good business to make it all work.

But what happens when a commercial building is sold and a new landlord takes over? While the words of that lease may stay the same, the new landlord’s understanding of what they mean (or its motivations in reviewing them) may be different – and perhaps be in conflict with that of the tenant and how it has been previously conducting its business under the lease. Or imagine where the previous landlord had tacitly (or even explicitly) agreed to disregard a lease a provision because it made good business sense to do so. What happens when the new landlord decides to adhere to – and enforce – the precise letter of the agreement?

Something like one of these scenarios appears to have happened in New York City where the high end health club Equinox had been operating its business under a lease for some fifteen years. Throughout that time it appears to have enjoyed a good relationship with its landlord and neighbors in a mixed used building in the Tribeca neighborhood of the City. Then, the building was sold and, earlier this year, the new owner served notice that Equinox was in breach of its lease due to the noise and vibrations its operations emitted. The landlord served Equinox with notice of default and sought to remove them from their long-standing home.

Equinox, not surprisingly, responded that nothing had changed in their operations and the prior landlord had never taken the position that the amount of noise and vibrations emanating from their business was in violation of the lease.  Moreover, Equinox had renewed the lease and invested a great deal in the space in reliance on that long-standing position. The owners of the gym filed suit to stop any eviction and to seek a judgment that they can remain in the premises. They have also claimed millions in damages to account for the investment made in the space based on the understanding the gym would be permitted to remain.

In our practice, we increasingly see this situation arise with our restaurant clients as various real estate investment companies purchase shopping centers and retail buildings. Often smaller local landlords, who have long standing relationships with their tenants, are replaced by out-of-state investment trusts which may not have the same level of tolerance and flexibility when it comes to lease compliance. And in other instances, it may simply be that the new landlord wants the old tenant out for some reason (to renovate, to redevelop, to seek a new tenant mix, etc.) and takes a fresh look at lease to see where a point of leverage – or an opportunity to evict – may be.

For these (as well as many other) reasons, we advocate for a thorough and detailed reading of any commercial lease before our clients commits to it. And we caution against placing too much faith in the past reasonableness or forbearance of a certain landlord. At the end of the day, it is the lease language that controls and it is only that language which is permanent. As such, the only way to ensure the lease’s terms will be read in a manner that is in keeping with your understanding, and that such interpretation will persist for the life of the lease, is to make that language as clear and unequivocal as possible at the time you sign it.



Is The End Near for Montgomery County’s Liquor Monopoly?

Montgomery County, our home jurisdiction, is the only county in the state of Maryland that exerts complete control over the distribution of alcoholic beverages.  With few exceptions, every pint of beer, glass of wine, and drop of spirits consumed in the county passes through the hands of the County government on its way from producer to customer.  This system has been in place since the repeal of Prohibition in 1933 left the regulation of the sale and distribution of alcohol to the states, and Maryland in turn essentially allowed counties themselves to determine how booze would been sold.  Up until last year, Montgomery County was accompanied by Worcester County in being such a “control jurisdiction,” but Worcester’s liquor monopoly ended last year.

Now, Montgomery’s system of liquor distribution is facing its own existential threat and, for the first time in a generation (or maybe ever), it seems like the forces seeking to end its monopoly may actually be in a position to do so.

Most prominently, Maryland’s Comptroller, Peter Franchot, has firmly expressed his desire to end the County’s liquor distribution monopoly and has announced his intention to work with state legislators from Montgomery County to introduce legislation to do so in the 2016 session.  (Note:  While such laws are county-specific, they must be passed by the entire Maryland General Assembly).  The Comptroller has forcefully stated that the County’s monopoly “eliminates competition, charges higher prices, offers fewer product choices and increases burdens on small businesses.”  Franchot’s position on this topic is particularly compelling because the Comptroller’s office is the top alcohol regulator in the state.

At the same time, a key group of Montgomery County legislators, led by Bethesda’s Bill Frick, has announced its own plan to put forth a bill in the 2016 session that would allow the County’s voters to weigh in via a referendum on whether the government liquor monopoly should continue.  This bill, like Franchot’s proposal, would not put the County out of the liquor business altogether, but rather require it to compete with private distributors.  That is precisely what occurred in Worcester County.

Under either proposal, even if they were to pass, the County’s control over liquor licensing, enforcement, and the like would not be effected or diminished at all (and, to be clear, our County’s regulators are among the best and most responsive in the State).  The proponents of proposals argue, however, argue that it is those activities — and those activities alone — that the County should be engaged in; and that commercial activities such as the sale and distribution of alcohol should be left to private industry.

This firm represents many bars and restaurants in Bethesda, Rockville, Silver Spring and other Montgomery County communities and I can scarcely think of any who would not welcome the opportunity to buy their products directly from private distributors who have the business incentive to provide a wide variety of products, at a competitive price, and in a timely fashion.  If you are a bar or restaurant owner — or simply a consumer — and have any thoughts on this matter, I invite you to contact me.  Due to the nature of my practice, I am often contacted by county and state officials on this matter and I would be pleased to pass along your thoughts.