Navigating Lease Agreements for Restaurant and Hotel Owners

In Short

• There are two main types of leases: fixed-term and month-to-month, each with unique terms and durations.
• Key lease clauses include permitted use, rent reviews, and maintenance responsibilities.
• Understand renewal, termination, and repair obligations to avoid unexpected costs and disruptions.

Tips for Businesses Before signing a lease, ensure the terms align with your business plans. Discuss renewal options with your landlord and clarify maintenance and repair responsibilities. Always review rent increase clauses to avoid future surprises. If unsure, consult a legal expert to protect your interests.

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Table of Contents

• Types of Leases
• Permitted Use of Premises
• Rent and Rent Review
• Maintenance and Repairs
• Key Takeaways
• Frequently Asked Questions

As a restaurant or hotel owner, your premises and location are critical to your business. The right property can be the key ingredient to your business’ success. That is why it is so essential to understand how to navigate lease agreements for your restaurant or hotel. This article explains the main types of leases you may encounter. It covers key provisions, including permitted uses of the premises, rent and rent review clauses, and additional maintenance or repair responsibilities.

Types of Leases

The main types of leases differ primarily based on their duration.

Fixed-Term Leases

A fixed-term lease specifies the duration of your tenancy precisely. It will include a provision that notes a specific date when your lease will expire. 

If the premises you want to rent have a fixed-term lease, you should keep a few things in mind. First, you should discuss the options for renewing your lease with your landlord. It can be frustrating, time-consuming and damaging to your business if you cannot renew your fixed-term lease and have to move your restaurant or hotel elsewhere.

You should also look into the circumstances in which you can break the fixed-term lease. The hospitality industry can be unpredictable, and you may need to close or move your restaurant or hotel before the end of the lease. In this situation, depending on your agreement, you may need to compensate the landlord for the remainder of the lease. 

How to End a Lease Factsheet

A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.

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Month-to-Month Leases

A month-to-month lease renews each month. The lease term may be shorter or longer than a month. You can end the lease with one month’s notice, as you are only required to pay for the current month. However, the landlord can also end the lease with the same notice period. This creates uncertainty and may force you to move your business unexpectedly. It is essential to ask your landlord about both parties’ rights concerning lease termination.

Permitted Use of Premises

As a hospitality business, you lease premises for a specific purpose. The lease terms will define how you may use the premises. For example, the lease may state that the premises are for retail use only. Your landlord may include such a clause for various reasons. Zoning regulations may prevent leasing to certain tenants, like nightclubs or bars. Additionally, the landlord may have agreements with nearby tenants, granting them exclusive rights to operate a hotel or restaurant.

Rent and Rent Review

Rent

When looking for premises for your business, rent may be the first thing you look for. Your lease will include the specific amount of rent you must pay. Additionally, it will note how regularly you must pay it. Rent is commonly paid in advance on the first day of each calendar month. 

Rent Review

The lease may include provisions to increase the rent regularly. It may state that rent will increase annually from the start date, either in line with the Consumer Price Index (CPI) or by a percentage, such as 3-5%. The lease may also specify a rent increase based on market rates when renewing for another term. You must understand when and how much the rent may increase before signing. This will prevent unexpected costs that could harm your business in the future.

Maintenance and Repairs

The lease may require that you undertake or pay for maintenance of the premises and repair of any damage caused. As a restaurant or hotel, you will likely renovate and install furniture and equipment on the premises. As such, you should ensure that you are clear about your obligations when it comes to repairing any damage. You must also understand the requirements for ending your tenancy. You may need to pay to restore the premises to its original condition.

Key Takeaways

There are several key elements of a lease agreement that you, as a hotel or restaurant owner, should be aware of:

1. There are two main types of leases, differentiated by their duration – fixed-term and month-to-month.
2. Your lease may stipulate the permitted uses of the premises.
3. You will likely be responsible for maintaining and repairing the premises.

If you need assistance with navigating lease agreements as a restaurant or hotel owner, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions