Leases / Wine Tasting

I missed class on Monday, due to the extended weekend, a baby who endlessly fascinates, and an upended sleep schedule. The two subjects were restaurant design, including an exercise in putting the pieces together on a sheet of graph paper, and business structure. The former, I'm not too upset about missing, as I feel I have a handle on design and the logic of flow, but think I may have to go into the book and see just what kind of company I want to run in the future and why -- a Limited Liability Company? A sole proprietorship? Etc?

Today, we reviewed leases, briefly looked at layout, and then tasted a wide variety of red wines. Leases: you gotta read 'em before you sign 'em. Residential leases have lots of government regulation -- even if you don't read it carefully, you're relatively protected. With a commercial lease, however, what you sign is what you're in for, with some reasonable exceptions.

Never sign a commercial lease without professional oversight. Not necessarily an attorney, but someone with experience who ca tell you how a lease will effect you -- effect you with what is there, and effect you with what is NOT there.

If the business owns it's building, that obviously is an asset that can be sold along with the business. In the case of renting a space, length of lease determines the value of a business. You can have the most fabulously successful restaurant, but if you have 1 year left on your lease, no one in their right mind would buy it from you until a new lease is negotiated. If you're rocking and you have 15 years left on your lease, then you're in the money.

Landlords tend not to like restaurants -- it's not uncommon to see available storefronts with a sign that says, "no restaurants". Though restaurants close pretty much as often as any other kind of business -- but there is the perception of volatility. Then there is the garbage, the smells, the pests, drunk customers, late hours, fire hazards, etc.

The lease is made up of clauses. Though not exhaustive, these are the big guns:

• Rent Structure: How you pay. Typically a fixed lease, where rent is determined by a schedule or formula, increasing from beginning to end. There are percentage leases, where rent is a percentage of gross sales, which means it will be in the interest of the landlord to drive traffic to the business, like in a mall. A Consumer Price Index lease ties rent to inflation (or, as the case may be nowadays, deflation.)
• Taxes: Percent of real estate taxes that the tenant is responsible door. This is pretty straightforward, but what if the government reassess the real estate tax and doubles it? Could be a business killer. In the lease, the clause could establish a sliding scale over time for whatever increase (or decrease) happens.
• Conditional Liquor License: Lease is only valid if a liquor license can be procured. If you sign a lease to open a bar, then the bureaucracy denies you a license, well...
• Construction: Will you be allowed to do what you want to do? Landlord may require specific approvals, or his own approvals, Time frame: typically there is a rent abatement period for construction. Access: while building out, you and your crew needs to be able to get in. Also, ownership -- who will own what is constructed, that is attached to the building?
• Utilities: You want individual metering, so you pay for only what you use. However, if there are common areas, a percentage based on traffic projections may be in order.
• Quality Standards: If you propose a pizzeria, a landlord can write into the lease that you will be a pizzeria, going so far as to define how much you sell of what. On the other hand, the leasee can get 'exclusivity' -- if in a mall, here you can assure that the landlord will not open another pizzeria in the complex.
• Time Standards: Times the operation is required to be open or closed. In a mall situation, this is pretty stringent.
• Insurance: Liability. Landlord will want you to carry some.
• Duties of Repair: Who is responsible for fixing what, in what time frame?
• Demolition / Eminent Domain: What if the government clears the land and forces the landlord to sell? This clause can assure that the renter gets a cut.
• Union: If the building is unionized, it'll probably require the business that come in to also be unionized.
• Code Violation: If the building is not up to code, who is responsible? The codes change all the time...
• Assignment/Sublease: The right to either assign the lease to another party, removing your own name from the lease. Or subleasing, where you are still on the lease and bear responsibility, and the subleasee pays you. With assignment, the onus is on you to find someone to take over your lease. At the same time, the landlord can restrict who you can assign to.
• Personal Guarantee: You promise to pay, no matter what.

The last couple of hours of class were dedicated to tasting eight red wines, sniffing, discussing what fruits it smells like, food matching, etc. I'm still of the belief that wine by itself is not very appealing, but when drank with rich food, it comes into it's own, becoming a flavor enhancer. As with every class, I'm amazed how gross the thick sweet stuff like port tastes, but when matched with something savory or stinky, the layers of squiggly flavors race across each other making the most wonderful new flavors. But to serve a flight of 8 dishes for eight wines would probably push the school's budget.