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APR 07, 2016

The Importance of Conducting Due Diligence on Premises Prior to Signing a Store-Front Lease.

A common mistake that hospitality entrepreneurs often make is hiring a liquor license attorney only after having executed a lease for the premises that will host the restaurant, bar or hotel. This is a serious mistake that could lead to serious financial burden for an e entrepreneur if the leased premises do not comply with the requirements imposed by New York Alcoholic Beverage Controls Act (“ABC Law”) in order to secure a liquor license.

The typical scenario I often encounter is an entrepreneur who negotiates and executes a lease for a specific space, paying a substantial security deposit (in NYC it could easily reach more than $100,000.00), and later finds out that a building used primarily as a school or for religious purposes (a church) is located in close proximity of the restaurant site. In the event that the school or church is located on the same street and within 200 feet of the restaurant site, the NY Liquor Authority will not issue an On-Premises Liquor License. This is known as the 200 Foot Rule.

I also advise restaurateurs to notify the local community board of their intention to apply for a liquor license as soon as the letter of intent for the prospective restaurant site is executed. It is a mistake to underestimate the detrimental impact of a negative opinion issued by the local community board on an application for a liquor license. Notifying the local community board as early on in the lease negotiation process gives an entrepreneur the benefit of determining whether the local community board will ultimately oppose the liquor license application with the Liquor Authority. This type of information is critical in determining whether moving forward with the lease agreements makes practical and economic sense.

 

Another common mistake during the restaurant lease negotiation process is failure to fully investigate the building site specifications. If the restaurant site is located in a “Landmark Building,” the process of obtaining permits to customize the space to suit its intended purpose and aesthetic will almost always be plagued with delay. In this scenario, failure to negotiate a long-term rent free period under the lease to account for the delays associated with renovating a space in a landmark building may expose the entrepreneur to having to pay rent for an inoperable premises for a prolonged period of time. A thorough due diligence process prior to the execution of the lease can avoid this type of unnecessary overhead cost.

The takeaway from this is that getting an attorney involved as early on in the process is critical if the ultimate goal is to avoid unnecessary expenses and delays associated with opening a restaurant.  


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