My Restaurant Operations are Limited and Rent is Due. Now What?

As restaurants across the country are being forced to limit their services to takeout and delivery or worse, close their operations altogether, tenants are reaching out to discuss their options with April rent payments looming.  Our initial response has been consistent and succinct: Don’t Panic.

The conventional restaurant owner was not likely prepared for COVID-19 and its impact on their business.  During a recent interview with CNN, Tom Colicchio, celebrity chef and owner of Crafted Hospitality, stated that he thinks three out of every four restaurants won’t be able to rebound after this pandemic without a direct income replacement from the government.  However, it may not be enough to rely on a possible government stimulus and restaurant owners need to take action now to prevent a possible default under their leases.

MAKE A PLAN

In fact, make 2 plans: (1) establish a plan for how to keep your restaurant operating under the current conditions (if permissible both by law and your landlord); and (2) establish a plan for what needs to be accomplished in order to re-open your fully operational restaurant once the COVID-19 restrictions have been lifted.  And be realistic.

  • Regarding Plan #1, speak with other local restaurant owners to see what people are doing in order to stay afloat. Try to create a network between local restaurants in order to help each other get the word out if takeout and delivery options are available and to share kitchen or delivery staff if you are in need while others are over-staffed.  Condense your menu and create lower-cost dishes to keep your overhead low and to sell your food before it spoils.  There is no perfect way to handle this, but the goal should be to reassess your monthly breakeven costs by cutting corners without reducing quality of the product (after all, you still need return business).
  • Regarding Plan #2, take a conservative approach to determining what it will take to re-open after the restrictions are removed. However, there are many questions to consider based on each particular situation.  For instance, how much money will you need to restock your kitchen?  Is your insurance still in effect and where do you stand with your utilities payments?  How much time will you need to get fully staffed and operational?  Will your distributors be on your timeline or should you prepare for a delay in the supply chain?  The goal is to determine how much time and money you will need once you can start fully operating before you can resume rent payments.  Be sure to give yourself a little bit of breathing room in case of delays in set up and distribution outside of your control.

CALL YOUR LANDLORD

If you haven’t done this already, it is important for you to reach out to your landlord as soon as possible to discuss your situation.  You should get the conversation started regarding what rent payments you can make, if any, while operating (if at all) under the current limited conditions and how much time you will need after the restaurant is fully operational before you can resume making normal rent payments again.  The idea is to establish a direct line of communication with your landlord and a teamwork approach with them to reach an informal understanding on how both parties are going to proceed while this situation remains fluid.  Document conversations and follow up with confirmation e-mails just to be sure that there are no misunderstandings.

THEN CALL YOUR LAWYER

After you and your landlord (hopefully) reach an agreement on the business terms, call your lawyer before signing a formal agreement.  Discuss the terms to confirm they are reasonable in light of the current situation and unknown future.  And, if you cannot come to terms with your landlord directly, your lawyer can review your lease and help you assess all of your options.

Keep in mind that there is no one-size-fits-all solution to any of this.  Most everyone is in the same boat, dealing with a situation that no one anticipated, at least not enough to be fully prepared.  To steal a phrase, this will take a village for us as an industry, a community, and as a nation to overcome this and prosper.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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