It’s officially summertime again! And for those restaurants operating with outdoor seating, here comes the extra business! While a full outdoor sidewalk café is one thing, glass-enclosed cafes with sliding doors have become particularly tricky when dealing with issues like whose property it actually is and to whom the rent is paid.
There is no set rule book, so this always becomes a gray area during the lease negotiation process, in terms of what the landlord quotes as rentable space and what exactly the tenant is responsible for with regard to obtaining and paying for city permits. The landlord’s perspective is simple: if it’s enclosed as part of the property, then it is rentable space and is still quoted in the ground-floor gross square footage. However, this leaves the tenant with a hefty bill that can be hard to swallow. Paying for the enclosed space in base rent, on top of the additional permit fees to the city, leaves many tenants feeling double charged.
It’s easy to understand the perspectives of both parties on this issue, but why should the tenant always end up with the burden of the bill? Unfortunately, that’s the game of Manhattan real estate. Landlords would rather sit on the space, waiting for someone willing to take on the additional expense, than take a hit on the rent for the quoted space or even remove the structure completely. These structures were initially paid for at someone else’s expense and are typically grandfathered in. To my knowledge, it is very difficult to pass a new-construction enclosed cafe permit through the city in today’s world.
Is it worth it for tenants to lease these enclosed outdoor spaces? As brokers, we guide our clients through the gray areas of the negotiation process in order to educate them on the value of this inherited enclosure. In my professional opinion, I do believe a glass enclosure is worth the tenant’s troubles. Permit fees are typically a fraction of what it costs to rent a glass-enclosed space, and that space could account for a significant amount of additional income. These enclosed glass cafes not only offer customers the luxury of outdoor ambiance, but they also take up more of the sidewalk space, allowing for increased exposure and additional signage.
The benefits to the tenant go beyond additional money-generating seats, as this increased branding is an added driver of traffic to the store. As long as the structure is delivered free and clear of violations and is completely legal, the value surpasses the fee.
I’d say, go for it!