Feeling the Heat: Restaurants and Bars Must Adapt to Ensure Survival
This is an unprecedented time in our country and in the world. The coronavirus (COVID-19) has shut down large swathes of the economy, with its most direct impact being felt on places where people congregate and socialize. Restaurants and bars are especially feeling the heat, as Americans do their part and increasingly shelter at home. But, people still need to eat, and the increasingly sophisticated palette of our country isn’t going to evaporate overnight, even as the supply (temporarily) diminishes. There will be a “new normal” when we come out of this crisis, and as always, the property owners, restauranteurs, investors, and visionaries who are creative and adept will come out stronger.
There are over 41,000 eating and drinking locations and over 1.1 million restaurant and foodservice jobs in Florida per the Florida Restaurant and Lodging Association. The first order of business is triage, whereby landlords and tenants will come to some sort of accommodation to ensure survival. The second order is to adapt and contemplate longer term solutions to the space, which will most likely require local government approvals and permits.
- Talk it out. Restaurants, like other retail tenants, must attempt to work with their landlords. If you are forecasting difficulties in meeting your rental obligations over the next 3-6 months as a result of government mandated closures and curtailing of dining-in business, tenants should be the ones to reach out to their landlords to initiate a dialogue relating to rent waiver, abatement and/or deferment. Your landlord is likely in the midst of negotiating or planning on how to deal with their other tenants. Tenants should not be afraid to initiate these conversations and have their lawyers take the first shot at drafting lease addenda memorializing these terms.
- Be creative. If tenants are seeking an immediate rent waiver or deferment plan in the short term, they need to also assure their landlord that this will make it worth it in the long term once their business is back in full swing. Tenants can offer to extend their lease six months at the same or an increased rate as the final term of the lease. This way, their landlord can obtain the level of security needed to feel comfortable in cutting that immediate 3-6 month deal.
- Don’t stop there. Given the leverage that tenants have at the moment, they can take this opportunity to restructure their long term lease obligations. Some landlords would rather restructure lease terms and give rent concessions than to lose a tenant entirely.
- Remember your personal liability concerns. If your restaurant or food establishment is facing hard times, remember that you may be personally liable in the event you seek to cancel the lease. Tenants and their principals should avoid signing a personal guaranty whereby they remain fully liable to meet all of tenant’s obligations for the remainder of the term in the event of a lease termination. The standard guaranty is one that is called a “good-guy” guaranty. This means that in the event a lease is terminated or tenant unilaterally opts to cancel, the guarantor is only liable through and including the vacate date. As long as the guarantor gives proper notice under the guaranty, vacates the premises in accordance with the lease (usually requiring the space to be turned over in “broom-clean” condition) and is up to date in its rental obligations as of the vacate date, the guarantor has proven to be a “good-guy” and is no longer liable under the lease. Keep in mind that the tenant entity does remain liable under the lease and in some cases, for the accelerated rent through the balance of the lease term.
Adapt and Evolve
- Site Approvals: Your building or space was approved by your city (or county) at some point in the past. It was reviewed by various disciplines including the planning department, traffic, engineering, utilities, police, fire, city attorney, city manager and ultimately city commission or planning board based on the land development code at that time, compatibility and other issues. It’s going to take a long time for it to be legal to congregate in crowds, not to mention advisable or even desirable by most people. So, restaurant spaces will need to be utilized differently in order to remain/become feasible again. This will require applications such as: site plan modifications, conditional use, special exception permits, and change of use certificates. This may even affect how your site is taxed by the property appraiser and other quasi-governmental entities.
- Prepared meals: Many restaurants will ultimately shift to cooking prepared meals. This may necessitate the installation of pickup windows and amended traffic and circulation plans based on its impact.
- Onsite gardens: There may very well be an opportunity for growing vegetables and herbs onsite: benefits include reduced contact of food items and packaging, as well as confidence in freshness. This is just an acceleration of the urban farming trend that has been taking off the past few years. Gardens may ultimately count towards open space requirements, freeing up space on the site for other uses. If it becomes the primary use, it could very well end up being classified as agricultural (with various benefits and impacts stemming from that classification.)
- Change of use: Similarly, restaurants may wish to change completely to groceries/markets, which under all of the executive orders being issued by various local and state governments are considered “essential services”. There would be a huge benefit to dispersing and diversifying grocery stores/markets, as it would benefit local proprietors and employ more people, reduce our reliance on a few big corporations/locations, reduce traffic and long lines, etc.
- Internal site changes and creativity: If dining out is truly a thing of the past (at least for the foreseeable future), then proprietors should look at redoing their spaces to accommodate separate operations/chefs; a space that accommodates one restaurant now may ultimately be able to accommodate three dining operations, perhaps each with their own equipment, such as dishwashers, cutlery & crockery, ovens and preparation areas.
- The benefit to owners would be not putting all your eggs in one basket, and tenants would have lower rents so it would be a win-win. This of course would require new leases; reviewing and drafting the terms, subleases, and specific clauses would require the sharp eyes of a trusted attorney.
- If the restaurant space is now separated into multiple disparate uses, we would have to look to see if the site would then be considered one unified development or individual developments and how that would impact the approval period until permits (buildout) become invalid, which is generally a function of your city’s land development code and approving resolution.
- Restaurants can be leaders and visionaries: There will be a lot of hurt and suffering of people in the near to intermediate future: with so much food waste in this country, what can we do to help feed those in need? Proprietors can help lead the way and be leaders and role models. There are non-profits that you can partner with and that we can help facilitate.
- Extending Validity of Development Orders: Finally, if you have been approved for a restaurant site but haven’t started/are in the midst of construction, Florida Statutes speak directly on the ability of applicants to delay expiration and validity of development orders and permits based on the governor’s emergency orders.
- Now is the time to prepare applications: Almost all cities are moving towards online hearings and development review capabilities. It is a good time to pivot and start preparing plans and applications as there will be a lag in review time to approval.
We are all in this together. Our country will survive and thrive once again. Please feel free to contact us to discuss your needs and how we can help.
Jeremy Shir, a Land Use Attorney at Becker, can be reached at JShir@beckerlawyers.com. Evan Rosenberg, a Real Estate Attorney at Becker, can be reached at ERosenberg@beckerlawyers.com. Like you, they are both missing their favorite restaurants.