Walking along the beach, my wife and I happened upon an entrepreneur who is creating a restaurant out of a historic beach house, in need of some renovation. As she outlined the details of her dream, she mentioned her concern about performance clause language in her lease negotiations. Performance clauses are instituted to protect the landlord, in her case the municipality from non- performance by tenants.
The clause generally requires a certain dollar level of sales volume be maintained, that a certain percentage of revenue be reinvested into the establishment in the form of capital improvements, or that a certain level of quality or staffing be maintained. The underlying reasoning for the landlord’s concern is that if a certain standard is not achieved and surpassed, the enterprise will flounder and reflect badly on the landlord, both conceptually and financially. The landlord is trying to mitigate financial loss as well as avoiding any legal entanglements. This is a legitimate business concern and you as a tenant must address that issue.
In your lease negotiation, you must be brutally honest with yourself in this regard, because landlords will utilize performance clauses to terminate a lease, if they are not comfortable with the performance or direction of your restaurant. Be very certain that you can meet or exceed any performance clauses that are written into the lease.
