With food ordering services having the potential to increase brand awareness and to drive revenue, traditional operators are increasingly looking to adapt their offerings to include takeaway and delivery services promoted online. So if your business is keen to join the food revolution by offering dine-in food to-go, what are the top 5 lease issues you may want to consider?
- Do you need planning permission for be able to sell takeaway food?
For planning purposes, restaurants are classified under A3 use and this does not automatically include use for hot food takeaway (which falls under A5) unless specifically stated. A3 use cannot be converted to an A5 use without a variation to the planning permission. Where the planning use includes A5 use “ancillary” to A3 use (or other words imposing restrictions) then check wording carefullly to ensure compliance with planning. The planning permission should also be checked for restrictions relating to serving arrangements, parking or hours of operation which may all impact on takeaway/delivery logistics. Planning clauses in leases often provide for Landlord consent to be obtain to making a planning application. Check the requirements and conditions of this carefully to avoid being in breach of your lease.
- Does your lease prohibit you from providing takeaway or delivery from your restaurant?
In addition to planning requirements you should also review your lease to ensure that use of the property for takeaway/deliveries is allowed. The permitted use under the lease may simply mirror that allowed by planning permission, but often it will impose its own additional restrictions. Check whether takeaway/delivery is permitted as a main or ancillary use. If not permitted at all you must apply for the landlord’s formal consent to change the permitted use. Where the landlord is entitled to refuse consent to a change of use this may prove to be a tricky negotiation. Even where the landlord is required by the lease not to unreasonably withhold consent to a change of use, granting of consent may depend on their assessment of the impact of a takeaway on its other tenants or on the estate as a whole. Restrictive covenants in the lease against offering takeaway food in general, or specific items of takeaway food (most commonly pizza) will also impact on the viability of a takeaway/delivery operation.
- Do you need landlord’s consent to create a delivery only kitchen space in your restaurant?
Unsurprisingly, any physical alterations to the restaurant premises required to enable a takeaway/delivery function may also require the consent of the landlord. Physical alterations may require consent or any resulting reduction of dining space may infringe a “keep open” covenant requiring the tenant to maintain trade from the whole of its premises. If additional ventilation or extraction is required, or separate connections or re-routing of servicing conduits to operate the separate kitchen space, you must consider whether your current lease rights over any plant area or servicing media are fit for the purpose. If not such matters may need to be addressed specifically in a licence for alterations or by a deed of variation of the lease.
- Does your lease permit subletting or group sharing of delivery only space so that you can combine or differentiate your delivery and non-delivery brands?
If the takeaway arm of your business is being operated by another company in your corporate group, or if this function is to be sub-contracted out to an under tenant, concessionaire or franchisee, then you will need to consider the alienation clause in your lease carefully to ensure that it permits such an arrangement. If it does, is the consent of the landlord required. Some leases permit sharing of occupation (provided that no relationship of landlord and tenant is created) but not parting with possession. This can get confused in practice and tenants can often believe that they are sharing under permitted terms of the lease, whereas in fact they have parted with possession by essentially creating a self contained area which excludes all but the operator of that part. It is important that you consider these alienation restrictions in light of your operational delivery strategy and fit out plans.
- How might offering takeaway/delivery food impact on your rent?
You should expect any widening of the user clause of your lease to include a takeaway or delivery function to have an impact upon the level of rent you will pay at review time. If the takeaway and non-takeaway element of your premises form two distinct parts of the unit at the outset of a lease you might consider whether each is rentalised on a separate basis or together. If your lease prospectively includes takeaway or delivery in its user clause (or if you did have a takeaway/delivery element to your operation which you are looking to terminate) then beware that rent review provisions which are not carefully negotiated may lead to you over-paying for the unit. This is because leases often allow landlords to review the rent to the highest market rent available for any or all of the permitted use(s) of the lease, not necessarily to the actual use the lease is being put to at the relevant review date (which may be much narrower). Equally, if your lease has a turnover rent then you are likely to find that turnover produced from the takeaway/delivery function will likely be included in the calculation of turnover from the premises (thus leading to a higher rental liability) unless drafted alternatively.
If you want to ensure that you are in the best possible position with your lease to offer a takeaway and/or delivery function to your operation then contact our specialist team with expertise in the restaurant sector.