Can You Control Restaurant Tenant’s Use of Patio Area?

With the failure rate of new restaurants hovering around 59 percent in the first three years of opening, it’s not surprising that restaurant owners are trying to come up with a hook—a theme, a specific type of ambiance, or discounts for certain groups or time periods in the day or evening. A trend that has gained so much momentum that it’s no longer a novel concept—and is somewhat expected in “cute” or bustling neighborhoods—is dining “al fresco,” that is, on a patio or outdoor common area next to the restaurant. If it works in their interest, landlords should be all for the concept—provided they don’t get burned by forgetting to negotiate provisions in the lease that protect them. Otherwise, you could have trouble down the line. For example, you could end up in a dispute with the tenant if the patio area hampers the flow of pedestrian traffic into and out of your building or center.

If you agree to allow a tenant to use a common area as its dining space, give the tenant a revocable license only. Because it’s “revocable,” you can take back permission to use the patio area, at your discretion. And because it’s a “license,” the tenant doesn’t get a “leasehold interest” in the patio area, so you can take the patio area back quickly, with minimal notice. You’ll especially want a right to revoke the license in case the tenant’s use of the patio area later creates problems—such as security problems, offensive odors, or if the patio area’s appearance deteriorates.

You may also want the ability to temporarily discontinue the tenant’s use of the patio area, which would be desirable if you think you might need access to areas near or above the patio area for repair or maintenance purposes.

For eight more items to consider before agreeing to allow a tenant to use a common area as its dining space, see “Negotiate Safeguards for Patio Restaurant Tenant, available to subscribers here