10 Common Pitfalls in Restaurant Build-Outs
By Deanna L. Koestel
Pitfall #1: Signing a lease without negotiating the build-out terms. Your restaurant lease is one of the most important contracts needed to start your business. Before signing anything, you must make sure you can get the restaurant build-out you want. There are many factors to consider. Here are just a few:
- Will you or your landlord be responsible for the build-out?
- Does your dream design plan include demolishing and creating new walls?
- Will the build-out affect the utilities of other building tenants?
- Will the landlord even permit your build-out plan?
- Will renovations need to be removed if the lease is terminated early by you or the landlord?
- Do you get a tenant improvement allowance to help pay for the build-out?
Make sure you negotiate these and other critical build-out terms before signing the lease. If possible, put your exact build-out design plans into the lease agreement to avoid any confusion or disputes with the landlord.
Pitfall #2: Underestimating construction expenses. Buying the lowest priced materials or hiring the lowest-bidding contractors can lead to shoddy workmanship, cheap and flimsy furniture, furnishings, and equipment that will inevitably break down sooner than higher quality goods and materials. These attempts to save money can lead to unnecessary expenses to repair or replace items on a shortened timeframe before the restaurant’s opening. You could also be forced to bring a costly lawsuit to seek compensation from the suppliers or contractors. Protect against these stressors by ensuring you have a reasonable budget that includes the flexibility to deal with unexpected construction expenses without sacrificing quality.
Pitfall #3: Not Hiring local construction professionals. Does your restaurant need floor drains? What type of fireproofing is required? What are the inspection wait times? Can you have an outdoor patio with seating? These questions and many more are no-brainers for local construction professionals who know the local laws, rules, and regulations and have experience with passing local inspections and avoiding expensive fines for code violations or redesign costs. A local construction professional can work with the appropriate personnel and efficiently navigate the process, which can help expedite permits and inspections and be the difference between an on-time completion and costly delays. If you do use out of town or out of state professionals, make sure you investigate their prior work in your area and do your homework to be comfortable that they know the local practices.
Pitfall #4: Not getting lien waivers from contractors, subcontractors, and suppliers. If you hire and pay your general contracting company on time, you probably think you don’t have to worry about the subcontractors who provide services and suppliers who provide materials to that general contractor, right? Wrong! Your contract with the general contractor needs to include certain lien provisions, such as requiring the general contractor to provide you with lien waivers from both his company and all the subcontractors and material suppliers on your renovation project. Without these contractual lien provisions to protect you, you can be hit with an unpaid subcontractor or supplier filing a lien on your renovation project. That will give you the headache of trying to discharge the lien (and trying to figure out what the general contractor did with the money meant for that subcontractor). You may also have to deal with an angry landlord on top of it all because many commercial leases include a prohibition on having mechanic’s liens or construction liens on the leased property. So, if you fail to fix the issue as quickly as your landlord wants, they could claim that you breached your lease and then try to terminate it.
Pitfall #5: Hiring an architect without food and beverage experience. Hiring an architect – even a highly recommended one – who lacks experience designing a restaurant can be an expensive problem. Architects who specialize in restaurants will understand the unique intricacies of designing a restaurant space, such as the need to allow customers and employees to efficiently flow through the space, while also meeting the local building codes, food prep and sanitation requirements, and respecting your design aesthetic. After all, even the most aesthetically pleasing design is worthless if the practical application fails to allow for proper table configurations or impedes server traffic to the kitchen. An inexperienced architectural plan can mean wasted time, angry customers, lost revenue, and – most likely – additional costs to pay another architect to fix these flaws.
Pitfall #6: Not securing all required construction permits. Maybe your contractor tells you not to worry about pulling all the permits because it takes too much time or is too expensive, and he skips these steps all the time. While fast-tracking the process by avoiding the time and costs of permit paperwork sounds appealing, proceeding with construction without the necessary permits will likely result in fines and delays by your local Department of Buildings (if not a Stop Work order that takes many months and lots of money to cure). More importantly, if work is not done to code and someone gets injured or hurt, you could be named in a lawsuit. Always follow your local building codes and rules and get the permits you need – it will save you stress, time, and money in the long run.
Pitfall #7: Not having a detailed, written and signed contract with your contractor. Written contracts ensure that everyone involved understands the specifics regarding the work that needs to get done, the quality of the materials to be used, the timeline for the work, and many other items. Handshakes, emails, and conversations are fine, but without signing a detailed contract, you have no way to ensure that your contractor shows up to do the agreed-upon work within the planned timeframe. There are many provisions you may want to include in that agreement. In fact, we could write an entire article on important issues to consider when drafting and negotiating your construction contract. One such provision is a liquidated damages clause that allows the parties to agree that if the contractor doesn’t complete the work by the contract deadline, the contractor will pay the owner a set amount of money for each day that the project is delayed beyond the contract date. There are many others. It’s best to consult counsel when drafting or executing these types of contracts.
Pitfall #8: Ignoring immigration laws. If you hire a general contractor, you may think you don’t have to worry about the workers he chooses to have on the project. However, enforcement surrounding immigration laws, such as the Immigration Reform and Control Act of 1986, has increased in recent years. As an owner, you may still have to deal with claims of potential Form I-9 violations if your contractor has unauthorized immigrant workers at your project during construction. To avoid being in this situation, you can include certain clauses in your written contractor agreements to make clear that the contractor is responsible for Form I-9 compliance, among other immigration-related issues. Again, it’s best to consult counsel when drafting or executing these types of contracts.
Pitfall #9: Buying used equipment. Equipment purchases are a significant expense but they are vital to the success of your restaurant. If you buy used faulty equipment, there is usually no warranty and no refund. You may end up paying more money to fix the used equipment or buying replacement equipment. For critical or heavy-use items, seriously consider whether the price of a new item with a long-term warranty is feasible to avoid these costly problems. If you must acquire used equipment, make sure the items are thoroughly inspected for defaults before buying them.
Pitfall #10: Unrealistic timelines. Delay is one of the most common complaints and sources of dispute between restaurant owners and their construction teams. You, as the restaurant owner, have spent time and money to promote a planned grand opening date. Suddenly, weeks or even days before the grand opening, the construction team tells you that they can’t meet the deadline, you won’t have a certificate of occupancy, and, therefore, you can’t open and operate. You threaten a lawsuit and the contractor threatens to walk off the job. To guard against that nightmare scenario, make sure you build in some “float” time between the construction completion date and your grand opening. Although it may push back the opening, it’s usually better to have extra time to prep then it is to be forced to publicly push back the big day.
Opening a new restaurant is an exciting adventure, but as with other adventures, there are a lot of ways you could be subjecting yourself and your new business to high risk and liability situations. Minding these common pitfalls will not only help your project run more smoothly, but can help ensure you spend more time in the kitchen and less in the courtroom.
Deanna L. Koestel is a commercial litigator for Norris McLaughlin, where she focuses on complex commercial and construction litigation, shareholder disputes, and general business law matters in New Jersey and New York. She routinely represents residential and commercial property and business owners, contractors and subcontractors, suppliers, and manufacturers in construction contract issues. Koestel brings a practical and business savvy approach to the law, serving as general “outside counsel” for several businesses – including restaurants and other service businesses related to the food and beverage industry. In this capacity, she provides advice and strategy to these businesses and drafts their business agreements to manage their legal needs and avoid or streamline any future litigation risk. [email protected] Website https://norrismclaughlin.com/
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