The Importance of Landlords, Leases & Location When Opening a Restaurant

There is a mantra in the hospitality industry: location, location, location. While there is a lot of truth to this old saying, my experience has taught me that two other “L” words—landlords and leases—are just as important to long-term success, if not more so, than the physical location.


Location can make or break a business. We all know restaurants that merely need to open their doors to make money, like those across from major tourist attractions. We also all know restaurants that have found amazing success in unexpected places. When Charles Phan’s famed Slanted Door first opened in San Francisco’s Mission District, it was the first chef-driven restaurant in the neighborhood and many guests did not feel safe. Phan has recounted many stories of people asking if it was safe to wait outside for a taxi; remember when waiting for a taxi was a thing?

It’s important to consider the connection between location and concept. What does the community need? This can influence type of cuisine, meal periods, or service style. What can the community support? This should help determine the price point, cash forecasts, hours of operation, etc.

Identify your target market and determine if your location and concept meet those needs. Is the size of the space compatible with your business model, and how will you fare if the restaurant isn’t full every day and every meal?

A market study is essential. Market demographics, traffic forecasts, and sales forecasts are all key data points to help determine if a location can attract and sustain the level of business required. These data points can help overcome the natural emotional connection that even the most disciplined business minds can develop to a potential location. Restaurants are about evoking emotion and creating experience. The best operators are creators, able to imagine what a restaurant can be, but at times, this skill can cause us to miss potential risks.

We recently walked away from a restaurant location in downtown San Francisco in a space that I love, even after investing significant funds in concept development. The data showed very clearly that the location would take a much longer time to attract the necessary level of business our restaurant would need. Data is the antidote to vision clouded by emotions and creativity. There are some great companies like Borne that can help gather the necessary data. 


Once you’ve determined if a physical location is a fit for your business model, the next criteria is to determine if the owner is someone you want to be in business with. We learned very quickly during the pandemic who our best partners were. It may seem counterintuitive, but often it was our larger institutional landlords who were willing and able to take the long view, working with us to ensure the long-term sustainability of our business model. We were surprised, even with Vine’s 30-year history and excellent credit and reputation, that there were landlords who were unwilling to work with us to jointly meet the completely unexpected business environment. While we hope to never have circumstances like the pandemic again, there will undoubtedly be many smaller issues that come up from trash removal to regular maintenance, and you’ll want a partner that operates from a place of mutual respect.

As you begin negotiations, it’s important to remember that restaurants bring a space and community to life. We bring the fun! Without restaurants to bring people and revelry, these spaces are empty. Keep that in mind during negotiation; you bring to the area more value than just your rent and revenue. Your restaurant will bring hundreds of people and their spending dollars.

Tenant improvement (TI) dollars are one way landlords can really help or hinder would-be restaurants. When a landlord provides funds for necessary improvements, it immediately impacts a restaurant’s ROI. Those TI dollars play a critical role in getting a restaurant open and running. If the space is a new development, you may be able to negotiate extra funds to help make the space functional.

If the space has been occupied before, ask, “Is it really as good as it seems?” What happened to what was there before? What challenges did they have? How can you mitigate that? Take this information into account when making your own projections and negotiating improvements. If you are taking over an existing restaurant space, don’t forget to inspect the equipment and anticipate the replacement costs. A very expensive pizza oven that comes with the space can become a very expensive capital expense down the line.

What happens if things don’t go as planned? We opened a restaurant called LB Steak in 2012, one year after we signed our 15-year lease. It was the second location of a restaurant we first launched in 2009, but what worked in San Jose’s upscale outdoor shopping complex, Santana Row, wasn’t working in suburban downtown Menlo Park. When it was clear the model wasn’t sustainable, we wanted out, but our landlord wouldn’t let us sublet. We had to get creative. We closed LB Steak, brought in partners, rebranded, and reopened under a new concept. Our partners operate it, but we remain the majority owner, and it’s become a big success.

Ultimately, a positive landlord relationship is always beneficial to your long-term success. It can be especially critical for re-negotiations once the original lease and its extensions have expired. Relocation is expensive and risky; a good landlord relationship is instrumental in extending your lease.


While qualities of landlords and locations can be open to interpretation, a lease is a stead-bound contract in black and white. Like any binding legal document, the devil is in the details. Read them carefully! One small line in a contract that seems unimportant can have deep implications 10 years later. A good attorney, with restaurant expertise, is essential.

What are you responsible for? Site improvements? Security? Make sure to budget accordingly. What is the clause for extension? Is it reasonable? Be sure to take into account the time required to get the doors open because if there is one restaurant mantra that holds true, it’s that you never open on time.

lease agreement for restaurant
(Photo: William_Potter, iStock / Getty Images Plus)

While lease contracts can seem incredibly onerous and long, there are some key areas to focus on:

  • “The Guarantee” - this is the legal obligation, and the most critical part
  • “The Options” - the renewal terms, an important factor in the longevity of your brand
  • Payment schedule - try to negotiate a ramp-up period to full lease terms, this provides a runway to stabilize expenses
  • CAM Charges - short for common area maintenance, these are shared operational costs that you are responsible for
  • Pay attention to what parts of the facilities are your responsibilities, especially the ones with large maintenance costs or responsibilities

When opening a new restaurant or expanding locations, it’s very easy to focus on all the details of the concept, menu, and how you will operate it. Location, landlords, and leases can seem like the dreaded part of the process, but they are essential to your long-term success and for helping you navigate all the opportunities and challenges—expected and unexpected—that lie ahead.


Obadiah Ostergard is the CEO of Vine Hospitality, a 30 year-old multi-concept restaurant group with 10 restaurant locations in the San Francisco Bay Area.


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