Legal Issues for Restaurant Owners

The current pandemic has ravaged the restaurant industry and has caused hardship on a scale not previously imagined. It used to be that a restaurant owner’s most cherished assets were its investors, its chef, or its best Maître D. Now, in the current crisis, a restaurant owner’s best friend may be its lawyer. The Coronavirus Pandemic has raised a host of issues that may require the skills of a trained professional to navigate. Here is a sample.

 

Rent. 

Most restaurants rent their space. They have a landlord and a lease. That lease imposes certain obligations primary among those obligations is the requirement to pay rent. It is not surprising that a tenant’s failure to pay rent is likely to put the landlord in a foul mood. Why? Landlords have obligations just like tenants. The obligation to pay a mortgage on the property where the leased premises is one of them. Therefore, it is usually incumbent on the restaurant – tenant to pick up the phone – either personally or through counsel  – and negotiate either a rent “abatement” or a rent “reduction.” Either way, being proactive on this issue is likely to score points with the landlord.

If that does not work, it is likely time to dust off the lease, send it to your lawyer and ask your lawyer to review the “force majeure” provision. The “force majeure” provision is a term used in leases which may excuse performance in the event of a war or other national crisis. Whether this provision can provide solace to a tenant faced with an intractable landlord is a question of exactly what the lease says. Courts are likely to take this question on a case by case basis. A good lawyer may be able to use the “force majeure” clause, and the threat of protracted litigation, to negotiate a rent abatement or reduction.

 

Insurance. 

An insurance policy is really just a contract between the insurance company and the insured. The problem that both insureds and insurance companies are now facing is that when most insurance policies were drafted, no one could have imagined a crisis like we are in now. While most restaurant owners are likely to be making claims for “business interruption” insurance it is equally likely that most insurance companies are going to deny those claims. The basis will be, among others, recently added exclusions for damages caused by bacteria or viruses. For those policies without such an exclusion, lawyers are likely to argue that the virus has caused damage to “property” which several courts have accepted in other contexts.  Alternatively, lawyers are likely to argue that the real cause of the damage was neither the property damage or the bacteria – it was the government shut down which caused the business loss.

In either case, now is the time for restaurant owners to use their resources. You can negotiate with the landlord, the insurance company and creditors until the curve flattens and we all start making dinner reservations again.

 

About the Author: Roger Slade is an AV-rated commercial litigator with over 30 years of experience. Throughout his career, he has handled all types of litigation matters including business fraud, class-actions for both Plaintiffs and Defendants, real estate litigation, privacy litigation, commercial collection matters, employment discrimination claims, general business disputes and international family law matters. Roger has served on the Board of the Dade County Bar Association, is the President and Founder of the Heroes of Tomorrow Foundation, and is on the Board of Directors of the Florida Restaurant and Lodging Association.

 

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