Austin is renowned for its barbecue, attractions, and fresh culinary offerings. Some even cite the city as one of the top foodie cities. Opening a restaurant or hospitality business involves more than just creating the perfect menu or atmosphere; it’s also crucial to find the right space for your customers.
Restaurant owners face unique challenges when it comes to commercial leasing, including specific utility requirements and operational restrictions.
Whether you’re opening a restaurant or expanding a well-known hospitality brand, this guide will help you navigate the essential aspects of restaurant leases in Texas, empowering you to make informed real estate decisions with confidence.
What Makes Restaurant Leases Unique?
Most commercial leases include elements like rent and lease length. However, there are unique considerations for restaurants and bars that require additional planning and protection. These factors include:
- Specialized construction needs (HVAC systems, grease traps, kitchens, and fire suppression systems)
- High-volume utility usage
- Constant deliveries and waste management
- Specific zoning and licensing requirements
- Customer and parking concerns
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Specialized Construction Requirements
Restaurants are not typical plug-and-play tenants. The buildout required to comply with health codes and operational needs includes:
- Grease Traps: These are essential for managing fats, oils, and grease (FOG). It’s important to determine whether your grease trap is shared or dedicated, who is responsible for its maintenance, and how accessible it is.
- Ventilation and Odor Control: Cooking odors can disturb nearby tenants, especially in mixed-use buildings. Landlords or municipalities may require systems to mitigate these odors.
- Fire Suppression: Your kitchen must comply with local fire codes, which may require additional systems beyond a standard sprinkler setup.
- Utilities: Ensure there is sufficient electrical ability, gas lines, water supply, and HVAC systems to support your concept.
Negotiate upfront who will bear the costs of these installations and confirm that the construction timeline aligns with your planned opening date.
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Key Operational Considerations
Hours of Operation
Many landlords impose restrictions on operating hours, especially when alcohol is served or when there is a patio. Ensure that the lease allows for your preferred hours, including outdoor dining and late-night service.
Deliveries and Loading Zones
Restaurants depend on frequent deliveries. Some leases may limit delivery times or restrict access to loading docks. Confirm how and when deliveries can be made and ensure these rules align with your kitchen’s needs.
Trash Disposal
Foodservice businesses generate large volumes of waste. Identify the locations of trash rooms (the designated area within the establishment for temporary storage of waste and recyclables), the frequency of waste removal, any cold storage requirements, and pest control obligations.
Common Lease Types for Texas Restaurants
Triple Net Lease (NNN)
Most restaurant leases in Texas are structured under the triple net (NNN) model. The triple NNN stands for tenants to pay a base rent plus a share of property taxes, insurance, and maintenance costs. This structure allows landlords to pass on building operating expenses to tenants, so you’ll need to budget carefully.
Modified Gross Lease
A modified gross lease is less common but can offer predictability. You pay a single lump sum that includes both base rent and certain operational expenses. However, these leases have the potential for unpredictable costs. While the base rent remains consistent, operating expenses and maintenance costs can fluctuate – especially if there are unexpected increases in utilities, property taxes, or significant maintenance issues.
Percentage Lease
Sometimes used in high-traffic retail centers, a percentage form of lease combines base rent with a percentage of monthly gross sales. While it can lower upfront rent, a percentage lease means landlords share in your success through a “breakpoint” negotiation. A breakpoint is the level of sales where percentage lease payments kick in alongside the base rent.
Co-Tenancy and Construction Timing
Co-tenancy clauses can protect you from opening before anchor tenants (like grocery stores or entertainment venues) are up and running. These clauses can delay your rent obligation or allow lease termination if the promised foot traffic doesn’t materialize.
Construction delays can feed into your runway and cash flow. Ensure your lease outlines buildout timelines, penalties for delays, and flexibility in case you need to open earlier than planned.
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Don’t Sign without Support
Restaurant leases are more than just agreements for real estate. A poorly negotiated lease can lead to increased costs, restrict growth, or even compromise your health and safety compliance.
At Richards Rodriguez & Skeith, we assist Texas restaurant and hospitality business owners in securing leases that promote long-term success. From site evaluation to lease negotiation and compliance support, our real estate attorneys are dedicated to protecting your interests.
Are you ready to find the perfect space for your next venture? Contact us today to schedule a consultation and review your restaurant lease together.
