Opening a Restaurant in NYC: Understanding the Differences Between a Lease and License

When looking to open a restaurant in New York City, it is important to understand the differences between a lease and license. A lease gives the tenant exclusive rights to occupy and use the premises for an agreed-upon term, while a license grants limited access that does not create property rights.

What is a Lease?

Leases are binding agreements between two parties—the landlord and tenant—that provide exclusive occupancy of real property for a specified period of time. The leases establish rent payments along with other obligations such as maintenance, insurance coverage, taxes, etc. Typically they also specify restrictions on what type of business can be conducted on the premises. In NYC, most commercial leases are net leases which require tenants to pay additional expenses including utilities, repairs, and taxes. 

What is a License?

Licenses on the other hand, are agreements that grant access to another’s property without creating any rights or interests in that property. This is a good option for businesses looking to use the space temporarily in NYC. Restaurants may obtain licenses to operate in certain areas, such as food halls, or special events, such as street fairs. Licenses also tend to be less expensive than leases since they have shorter terms with fewer obligations attached. 

In a Lease agreement who is responsible for maintenance, taxes, insurance and utilities?

The rent specified in the lease is usually an agreed upon fixed amount that must be 

paid by the tenant over the course of their occupancy. In addition, tenants are responsible for all other costs related to maintenance, taxes, insurance, and utilities associated with running the business. The fee paid to the licensor typically consists of a flat rate per month and/or a percentage of the licensee’s revenue, and it may also include additional fees for marketing or other services.

What happens when you want to terminate the Lease?

Termination of a restaurant lease in NYC is typically much more complex than termination of a license agreement in a food hall. A restaurant lease always includes details such as the length of tenancy, the rent amount, the security deposit, and several obligations that must be fulfilled throughout the term of the lease. It also includes language regarding what will happen if either party fails to fulfill their obligations or terminates the agreement before its expiration date (typically, the restaurant principal has to personally guarantee the provisions of the lease with a so-called “good guy guarantee”). 

On the other hand, a license agreement for use of space within a food hall does not typically contain many of these details and instead usually focuses on establishing how long the licensee can occupy the space and outlining any restrictions associated with their occupation. Additionally, most food hall rental agreements are month-to-month and do not require any kind of long-term commitment or security deposit, or just a limited one. Termination of a license agreement typically occurs when the licensee fails to meet their obligations or when either party wishes to end it before its expiration date or in the sole discretion of the licensor, but the details and consequences associated with termination are much less complex than those in a restaurant lease.

An exclusivity clause in a license agreement to operate a restaurant in a NYC food hall is quintessential. It specifies that no other vendors providing same or similar food may operate within the food hall without prior approval from the licensee operating the restaurant. On the other hand, this is less of a concern in a regular NYC restaurant lease, unless the landlord has several restaurant spaces in the same building.

In a restaurant lease, the tenant is typically responsible for providing all of the necessary equipment within their space such as furniture, fixtures, and appliances. The landlord may provide some minor items such as garbage cans or window shades but generally, anything else needed must be supplied by the tenant. This includes an oven, refrigerator/freezer unit, ventilation hoods, and other cooking equipment if applicable. 

In contrast, when signing a license agreement with a food hall licensor, the licensee does not need to bring in any of these large pieces of equipment since it will already be provided for them. This typically includes an oven, refrigerator/freezer unit, ventilation hoods, and other cooking equipment as applicable. In addition to these larger items, the licensor may also provide smaller items such as shelving units or display cases. The licensee will still be responsible for providing their own furniture, fixtures, and any appliances that are not necessary for their specific food concept. 

All these differences should be taken into consideration when reviewing a lease or a food hall license agreement to understand what is expected from the operator to run a successful restaurant in NYC.