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Texas Restaurant Law

Have You Considered Parking In Your Restaurant Lease?

Posted in Contracts, Liability, Litigation, Real Estate

Shockingly, many restaurant leases fail to account for parking. More often, the landlord considers whether there is enough parking before entering into the restaurant lease negotiations, but they don’t account for it in their leases. Still, few, if any, restaurant leases actually guaranty parking or even address it. This article establishes the pros and cons of these provisions and provides some direction in each instance. Ultimately, and despite some of the following advice, it benefits benefits both the restaurant owner and the landlord to have an idea about what parking needs exist and what the requirements of those parking needs are.

When Should A Restaurant Lease Exclude A Parking Provision? 

If you’re the restaurant owner, there are times to avoid the discussion of parking in your lease. One such instance is when you believe that your patrons’ parking will exceed a greater ratio of the parking lot than other tenants of a similar size. Another instance is when you believe that the landlord has greater leverage than you do in the lease terms. In either instance, the landlord is likely to put more restrictions on your parking than you would otherwise have.

When Should A Restaurant Lease Include A Parking Provision?

As mentioned above, it aids both parties to have certainty in a lease, and if that’s desired, include a parking provision. This is especially important if your restaurant requires a patron’s lengthy stay, like a fine dining restaurant that’s large. You might also insist on including a parking provision if the center or the area around the restaurant is already tight or congested.

Types Of Restaurant Lease Parking Provisions

There are many types of parking provisions in leases. These include:

  • A simple provision stating that sufficient parking will be provided;
  • A specific provision stating an allocation of parking spaces;
  • An even further specific provisions stating that certain spaces are allocated or reserved and others are generally open;
  • A provision that requires restaurant employees to only park in certain areas; and
  • A combination of any or all of the above.

What are your thoughts? Have you seen a good parking provision or have you had an issue in not including such a provision? Please let us know your thoughts!

About the authorMatthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

When To Use Letters of Intent In Buying a Restaurant

Posted in Acquisitions, Contracts, Liability, Negotiation

Letters of intent can be confusing. Are they contracts? Are they binding? When should they be used? It’s important to know when to use letters of intent because they can be valuable tools that can save time and money. We receive these questions all the time, so here are some concepts that will help.

What Is A Letter Of Intent?

A letter of intent (i.e. an “LOI” or a term sheet) is a document that provides the basic terms of a transaction. It can be as simple or as complex as the parties desire. As shown below, LOIs can be contracts or not. They can be binding, non-binding or binding in some ways and not binding in others.

Letters Of Intent Are Contracts – Sometimes

A letter of intent is only a contract if the parties exchange consideration. Consideration can be money or it can be an exchange of promises, like “I’ll buy your company if you represent that it’s good.” As this example demonstrates, it is easy to make something a contract, even if it is not intended. Because it can be so easy, we always recommend using an express statement that the LOI or term sheet is not binding if it is not intended to be binding.

Letters Of Intent Are Binding – Sometimes

As shown above, letters of intent are often contracts, and if that is not desired, you need an express statement showing that the LOI is not binding. However, the parties often want some parts of the term sheet to be binding and some not binding. You can do this. To make it happen, we often use a statement in the LOI stating that certain sections are binding and others are not. The most common binding parts of a letter of intent are confidentiality and no-shop provisions. Thus, you can state that the letter of intent is generally not binding, but the parties promise each other to keep information secret and not to entertain other buyers for a certain amount of time while a fully binding and expansive purchase agreement is negotiated and signed.

When To Use Letters Of Intent

Here are some guidelines that we use to decide when to use a letter of intent. The choice is pretty simple, which is whether to insert the step of negotiating a letter of intent or whether to skip that step and just negotiate a purchase agreement. If you are really short on time, skip the LOI and go straight to negotiating the contract. It takes time to negotiate the letter of intent first. However, the LOI can sometimes actually save time because it can allow the buyer and the seller to discuss the points that are most important before the contract is prepared. Then, when the attorney, accountant or broker drafts the contract, the buyer and seller know the points that mean the most to the deal. Likewise, if a third-party (like a broker, lawyer, or accountant) is negotiating the contract after the LOI is prepared, that third-party has less to argue about because the term sheet can be used as a reference to keep everyone on the same page. Keeping everyone involved in the deal focused can then save money because the third-party negotiators are not altering the key deal points agreed upon by the buyer and seller.

What are your thoughts? Do you have a preference between a contract and a letter of intent? Please let us know your thoughts!

About the authorMatthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

Confusing Expiration Labels Cost Texas Restaurants

Posted in Legislation, Liability, News, Recent Law Trends

All restaurants have to deal with the issue of throwing away food at the end of the day. According to the National Resources Defense Council (NRDC), a powerful environmental action group and the Harvard Food Law and Policy Clinic, confusing and inconsistent food date labeling causes restaurants to throw out significantly more food than is necessary.

In October of 2013, the NRDC and the Harvard Food Law and Policy clinic released a report discussing the efficacy of date expiration labels on food. The report focuses on the fact that food date labels are very confusing and suggests that as a result many consumers and businesses waste enormous amounts of food each year. Click here for the full report.

In fact, an NRDC article summarizing the report states that U.S consumers and businesses throw away “billions of pounds of food every year as a result of America’s dizzying array of food expiration labeling practices,” amounting to “nearly half our food.” The summary article also states that “[f]orty percent of the food produced [in the U.S.] never gets eaten” and argues that “[m]isinterpretation of labels is one of the key contributing factors to this waste.” Click here for the NRDC article.

The report points out that date labeling is virtually unregulated and that even when it is regulated, the specific rules vary from state to state due to the lack of a federal labeling standard. For example, the report notes that in Texas and many other states, there are no date label requirements for milk or dairy.

Following up on that report, the Houston Press published an article that discusses, in part, the issues that confusing date labeling can cause restaurants. The article points out that restaurants and other business are not allowed to use or sell food that is expired, whether it be a sell-by date or use-by date. As a result, many restaurants throw away large amounts of food that is still safe for human consumption. For the full Houston Press article, click here.

The report suggests that restaurants can help prevent food waste by either selling or donating food that is near its expiration date. More pointedly though, the report calls for action from the government to institute a standardized labeling system across the United States. While there are no doubt numerous opinions regarding the best way to improve food date labeling, the Houston Press article notes “that most experts, and restaurant owners, agree that the government should be doing more.”

What are your thoughts? Should there be a federal standard? Are there other ways to save from wasting food? Please let us know your thoughts!

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

All Press Is Good Press For Texas Restaurants

Posted in Commentary, Intellectual Property, Liability, News

Some of you may have heard the latest uproar caused by Pizza Patrón. Known for its undaunted ability to generate press from clever, edgy marketing campaigns, Pizza Patrón’s latest endeavor was to name a pizza, La Chingona. While the name really just means “badass” in Spanish, it is derived from such an offensive root word that many native Spanish speakers find it offensive and refuse to use the word in most situations.

As noted by Scott Reitz from the Dallas Observer on March 18th,

CBS and Univision have refused to run it. La Chingona is in fact so offensive to some that NPR won’t run a story about Patrón’s plight on the radio, opting to keep their La Chingona coverage on the untamable Internet.

Click Here for the full story.

While Pizza Patrón felt the need to address the situation on its website, one must ask, “Can they really be that upset over this issue?” Let’s analyze it.

Has Pizza Patrón Broken Any Laws?

The easy answer is no. Pizza Patrón broke no laws in labeling a product something that some people, in this case some Spanish speakers, consider obscene. This is rooted in First Amendment law that we all have the right to free speech. Most people, lawyers or otherwise, know that we can say what we want, with just a few exceptions.

Are The Networks Liable For Not Allowing Pizza Patrón’s Commercials?

The networks refusing to run Pizza Patrón’s ads are absolutely not liable. First, there are probably contractual provisions letting the networks refuse to run anything deemed to be offensive. Also and more importantly, the networks are beholden to the Federal Communications Commission (the “FCC”) regarding what they publish. As such, the networks will typically do anything they can to avoid FCC penalties.

Conclusion

Thus, again: “Can Pizza Patrón really be upset over this issue?” Since they have broken no laws and they have not been damaged by anyone over the name of their latest pizza, including the networks, the answer must be no, and as the saying goes, “All press is good press.”

Have you seen any marketing campaigns with a different result? Have you been offended by slogans or pitches from restaurants? Please comment and let us know!

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

South By Southwest Deaths Highlight Alcohol Issues For Texas Restaurants

Posted in Alcohol, Asset Protection, Commentary, Employees & Waitstaff, Legislation, Liability, Litigation, News, Recent Law Trends

Three people are now confirmed dead in the recent car crash tragedy at South By Southwest. (Click here for the article by Quita Culpepper from KVUE.com.) According to the article, these people were “injured on Thursday, March 13 outside The Mohawk when Rashad Owens, 21, is said to have barreled into a crowd of festival-goers while fleeing from police.” This horrific event leads many restaurant owners to reevaluate their alcohol serving policies and to wonder exactly how much insurance they need.

What Alcohol Serving Precautions Should Restaurant Owners Require?

To answer this question, a related article from InsuranceNewsNet.com states,

“Texas law allows the victims of a drunk driving accident or alcohol related accident to pursue a claim for “Dram Shop” liability against the bar for breaching their duty. . . .  If a patron is over-served by an establishment that possesses a Texas alcoholic beverage license, beyond the point where he or she are an obvious danger to themselves and others, and then they get behind the wheel of a vehicle, a business can be held responsible for the consequences. . . .”

Click here for the article.

So what does this mean to restaurant owners? It means that the standard is actually very high to prevail on an alcohol related (a/k/a “dram shop”) claim. Nonetheless, it also means that Texas restaurants should make sure that their insurance coverage for these claims fully covers them. Insurance is the prime way to both defend Texas restaurants from these claims and to make victims whole for their damages. This leads to the next question.

How Much Insurance Should A Texas Restaurant Keep For Alcohol Related Claims?

There is no magic formula to determine exactly how much insurance restaurants should keep. In fact, some restaurants take the position that the less insurance they have, the less likely they could be targeted for a lawsuit.

Clearly, we take the opposite position, which is that restaurants should keep a significant amount of insurance commensurate to the amount of alcohol served. We recommend this for several reasons. First, it is important to have assets to cover claims. Second, insurance not only pays claims, it can also cover legal defense costs. Third, it is much less expensive to buy insurance than to pay claims or legal defense costs in the event of litigation.

Clearly, the events of this tragedy dictate that restaurants should be careful both in how they serve alcohol and in the insurance carried to cover terrible incidents like the one at South By Southwest.

Are you a restaurant owner that’s experienced alcohol liability? Do you have “war stories” about the benefits of insurance? If so, please let us hear them!

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

Removing Customers: When Can A Texas Restaurant Ask A Patron To Leave?

Posted in Commentary, Employees & Waitstaff, Legislation, Litigation, News

Last week, the Washington Times published a very sad article. It reported that a Texas war veteran was kicked out of the River Side Inn Marina, which is a restaurant in Houston. The story stated that the veteran simply had a service dog that helped him with his post-traumatic stress disorder. For the full story written by Jessica Chasmar, click here.

As we previously posted in the The Top Five Consumer Myths About Restaurant Law (Dec. 2012), there are a finite number of reasons that a restaurant cannot refuse service. These include:

  1. Race;
  2. Religion;
  3. National Origin;
  4. Gender;
  5. Sexual Orientation;
  6. Disability; and
  7. Age (for older citizens, not those under age).

As you may note from the unusual wording above, these are protected classes that disallow discrimination, including asking a restaurant patron to leave. However, a restaurant MAY remove a patron for almost any other reason.

In the story above, the veteran appears to fulfill two different classes – he’s a veteran and he’s disabled. It seems the manager was confused and thought that dogs were only for the visually impaired.

As such, restaurant owners and staff should be careful when removing customers. Failure to consider all of the possibilities within the protected class categories can lead to legal issues. Still, it seems that this restaurant is now suffering more from its bad press than actual legal issues.

An option for restaurants is to have a policy in place ahead of time as to exactly who and for what reasons customers can be asked to leave. Even if the restaurant is owner operated, such a plan would allow the owner to consider issues in advance before making a decision in haste. This was clearly a rash decision – don’t let it cost you or your restaurant.

Do you have an opinion on this issue? Please share!

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

Can Texas Restaurant Owners Deduct the Costs of Repairs From Lease Rental Payments?

Posted in Contracts, Legislation, Liability, Litigation, Negotiation, Real Estate

Nearly all restaurant tenants face challenges with their lease at some point.  Often these challenges come in the form of needed repairs to the property caused by the landlord’s substandard maintenance of the property.  The landlord may delay making necessary repairs, make inadequate repairs, or even refuse to make some repairs.

After haggling with the landlord over the repairs without result, a restaurant tenant’s next thought is often that they want to make the repairs themselves and deduct those repairs from their rent payments.  In fact, many restaurant tenants feel that Texas law expressly provides for this type of remedy.

But do Texas statutes allow a tenant to make that type of deduction? As shown below, the answer is NO.

Texas Property Code

Section 92.056 of the Texas Property Code allows a tenant to deduct the costs of repairs from the tenant’s rent if:

  1. the tenant has given the landlord notice to repair or remedy a condition by giving that notice to the person to whom or to the place where the tenant’s rent is normally paid;
  2. the condition materially affects the physical health or safety of an ordinary tenant;
  3. the tenant has given the landlord a subsequent written notice to repair or remedy the condition after a reasonable time to repair or remedy the condition following the notice given under Subdivision (1) or the tenant has given the notice under Subdivision (1) by sending that notice by certified mail, return receipt requested, or by registered mail;
  4. the landlord has had a reasonable time to repair or remedy the condition after the landlord received the tenant’s notice under Subdivision (1) and, if applicable, the tenant’s subsequent notice under Subdivision (3);
  5. the landlord has not made a diligent effort to repair or remedy the condition after the landlord received the tenant’s notice under Subdivision (1) and, if applicable, the tenant’s notice under Subdivision (3); and
  6. the tenant was not delinquent in the payment of rent at the time any notice required by this subsection was given.
    However, the question is whether this provision applies to commercial leases like a restaurant lease. 

Because this statute applies only to residential leases, commercial leases, like a restaurant lease, have no similar protection.

Commercial Leases

Historically, Texas courts have held that the landlord’s duty to repair the property and tenant’s duty to pay rent are independent of each other in commercial leases.  More recently, though, Texas courts have recognized an implied warranty of suitability by the landlord that the property is suitable for its intended commercial purpose.  However, Texas courts are also strongly in favor of freedom of contract.

Thus, though Texas courts have recognized an implied warranty of suitability for intended purposes in commercial leases, virtually all commercial leases have a clause disclaiming any express or implied warranties not specifically provided for in the lease.  Additionally, most commercial leases also have a clause placing the responsibility for certain repairs on the tenant.

As as a restaurant tenant, you must carefully examine your lease with regard to who is responsible for making repairs and the available remedies if those repairs are not made.  Unlike residential tenancies, you cannot simply rely on the statute and deduct repairs from your rental payments.

Texas Restaurant Update – Acquisitions, Openings And Closings

Posted in Acquisitions, News

Following up on our January 15th post on Texas restaurant openings and closings (click here for that story), here is the update for February on the movers and shakers in Texas restaurants. If you’d like your restaurant to be considered in our next update, please let us know!

Chuck E. Cheese’s Enters Agreement To Be Acquired

First and foremost, Chuck E. Cheese’s has had big news. On January 16, the Dallas Morning News reported that Chuck E. Cheese’s announced that it would be purchased by an affiliate of Apollo Global Management, LLC for $1.3 billion.  The sale of Chuck E. Cheese, which operates 577 restaurants, is for $54 per share, representing a 25% premium over the stock price before rumors of the sale started popping up.  Chuck E. Cheese has been around since the late 1970’s, but, according to the article, “recently began investing heavily in updating its image,” including a new “thinner, hipper Chuck E. and a new branding campaign by the Dallas-based Richards Group.”  Also, in an attempt to draw added attention, Chuck E. Cheese recently announced a new instant win contest with prizes totaling nearly $1 million, including a grand prize of $5000 of travel credit with Disney Cruise Lines.  You can find the full Dallas Morning News article here.

On January 27, the Dallas Morning News followed up on the above article, reporting that “at least three lawsuits seeking class action status have been filed challenging the proposed purchase of the parent of Chuck E. Cheese by Apollo Management LLC.”  According to the article, the shareholders allege that CEC Entertainment’s directors had breached their fiduciary duties to the stockholders for several reasons, including agreeing to “an inadequate tender price.” Since the January 16 announcement, CEC Entertainment’s shares have traded above the tender price.  For the full Dallas Morning News follow-up, click here.

Several Restaurant Openings and Closings

Aside from the mega news surrounding Chuck E. Cheese’s, here are the other notable openings and closings:

Recent or planned openings include:

  •          Pier 247 has opened in the Bishop Arts District [more here]
  •          Phil Romano is opening a sushi restaurant, Sushi Bayashi, in Trinity Groves [more here]
  •          Frank Kent Motor Company is planning to open an ‘upscale wine bar and specialty retail shop’ that will “double as an automotive drop-off service center” [more here]

Recent closings include:

  •          Hacienda on Henderson Avenue  in Dallas [more here]
  •          Mr. Max, a Dallas Japanese restaurant [more here]
  •          Scotty’s Elm Street Saloon [more here]

Are you opening or acquiring a restaurant? Do you want buzz generated to our list of thousands in the restaurant industry? Please send us information. We’d love to help you promote your restaurant!

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

FDA Sets Guidelines for “Gluten-free” Foods in Stores and in Restaurants

Posted in Legislation, News, Recent Law Trends

“Gluten-free” seems to be everywhere.  You may not know what “gluten-free” means, but chances are you haven’t missed the growing number of restaurants, grocery stores, and food brands that are offering menu items or food products that are “gluten-free.” And if you are a restaurant owner or are planning to open a restaurant, it is certainly important to know what “gluten-free” means and how it may affect your business.

The FDA recently issued a final rule defining the characteristics required for a food to be labeled “gluten-free.”  Up to an estimated 3 million people in the United States have celiac disease, which can cause potentially life-threatening illnesses if they eat the gluten found in certain foods like breads, pastas, and cakes or any food that contains wheat, rye, barley, or crossbreeds of these grains.  The FDA ruling is great news for those Americans who suffer from celiac disease, as well as those people choosing to eat gluten-free.

For restaurant owners, this new rule is particularly important given the growing trend of offering “gluten-free” foods as a way to attract new customers.  For instance, Danielle Abril wrote an article in the Dallas Business Journal last July discussing the “gluten-free” trend in national restaurant chains and in local restaurants, particularly in the past twelve months.  See this link for that article.

The FDA ruling sets a gluten limit of 20 ppm (parts per million) in any food that carries the label “gluten-free.”  The same rules apply to foods labeled “without gluten,” “free of gluten,” and “no gluten.”  The rule will provide comfort and certainty to people with celiac disease that foods labeled “gluten-free,” whether on menu items in restaurants or food products for sale elsewhere, are safe for them to consume.

For restaurants that want to or are currently offering items labeled “gluten-free” or some similar label, those foods must be in compliance with the new rule by August 5, 2014.  For a more detailed analysis of the requirements of the new FDA “gluten-free” labeling rules click here and for the final rule in the Federal Register click here.

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.

What’s The Best Way To Pass On A Restaurant At Death?

Posted in Asset Protection, Corporate Entity, Estate Planning, Real Estate

Most restaurant owners want to provide for their families when they die and protect their assets from liability. However, there are issues if the owner just conveys the real estate in a Will. To avoid these issues, restaurant owners should instead consider passing down interests in their companies and placing each piece of underlying real estate in its own legal entity. This post shows some of those issues and how to avoid them.

The Problem With Testamentary Real Estate Transfers

Passing down the real estate interests associated with restaurants can turn into a convoluted mess. For instance, we have seen situations where clients have passed down numerous undivided interests in the underlying real estate of their restaurants over generations. Some of the transfers were documented. Others were not documented or were documented incorrectly. After three or four generations of continued testamentary transfers, these issues get extremely confusing and convoluted. Sometimes even title companies will no longer issue good title to a property without extremely costly legal analysis.

So what is the solution?

One Solution

Restaurant owners should consider placing each restaurant and its underlying real estate into separate legal entities. This solution offers both asset protection and a documented record of ownership. Additionally, the interest in each separate entity can and should be conveyed either in trust or through the owner’s Will. The solution touched on here provides a simple way to pass down restaurant real estate, rather than convoluting the real property ownership and dealing with associated title insurance. Finally, this solution can be surprisingly affordable, especially given both the asset protection and estate planning benefits associated with it.

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.