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The impact of the COVID-19 pandemic upon the food and beverage industry has been well-documented and is readily apparent. According to the National Restaurant Association, total restaurant sales for 2020 came in approximately $240 billion below projections and, as of Dec. 1, 2020, more than 110,000 eating and drinking establishments had closed either temporarily or for good.

In addition to being important economic drivers, restaurants also have become an integral part of American social life. As such, it comes as no surprise that the Small Business Administration recently rolled out a multibillion-dollar 鈥淩estaurant Revitalization Fund鈥� to help the sector get back on its feet.

Restaurant tenants and landlords have now largely adjusted to the challenges presented by the pandemic, making on-the-fly adjustments to existing lease agreements. As we race toward mass vaccination and (hopefully) the economy reopening, we might ask: What, if any, lingering impact will the pandemic have on the restaurant industry and the real estate leases in particular? What demands will changing business models and tenant needs place upon owners and space designers post-pandemic?

Here鈥檚 a look at five early trends in the emerging post-COVID marketplace, and some thoughts on their legal and business implications:

1. Drive-thrus

According to Matt Sichel, a senior director at NAI Elliott in Portland, tenants with drive-thrus generally have fared well, and in the Portland metropolitan market there is strong demand for leases of space with such capabilities. This is not surprising 鈥� long drive-thru lines are now a common sight. Those long lines do, however, present a challenge for landlords trying to take advantage of this trend. Even restaurant chains with expertise in handling heavy drive-thru volume have, at times, faced issues 鈥� blocked drive lanes, blocked parking spots, and lines spilling into surrounding streets. In a multi-tenant shopping center, these traffic flow issues can impede access to, and parking for, the surrounding tenants. The issue may need to be addressed, not just from a design angle, but also from a legal angle by building rules and obligations into leases and shopping center master declarations to require drive-thru restaurants to mitigate the impact of their lines, and granting landlords certain rights to address recurring issues. A robust mitigation plan will also provide assurances to prospective tenants of surrounding spaces that may be wary of leasing space near drive-thru tenants.

2. Curbside pickup, third-party delivery

Many restaurant tenants added curbside and third-party delivery service capabilities during the pandemic, and they certainly are not going to remove these additional 鈥渢o go鈥� service options from their arsenal going forward. Proximity of parking spaces to their premises鈥� doors is of increased importance to facilitate these services. From a design perspective, ensuring that retail projects have sufficient dedicated parking for such curbside/delivery service traffic will minimize congestion from restaurant staff running orders to cars. From a contractual standpoint, landlords may end up facing more pressure than before to grant tenant-specific dedicated parking to tenants that have not historically received such rights.

3. Outdoor seating

Despite the new emphasis on takeout as a source of revenue, many restaurant formats still depend upon on-site, in-person dining experiences. According to Sichel at NAI Elliott, in addition to an increase in demand for outdoor seating areas for tenant use, tented areas are probably going to be a permanent feature at retail establishments for the foreseeable future. The grant of exclusive, and nonexclusive, rights to use outdoor areas at shopping centers raise certain practical issues that should be addressed in new leases. If a landlord wishes to provide a single mass outdoor seating area, available to all restaurant tenants for use by their customers, then the restaurant tenants鈥� leases may need to incorporate concepts usually found in mall 鈥渇ood court鈥� leases. Increased ground rubbish, more frequent common area trash bin emptying near the eating area, sufficient supply of tables and chairs, and daily cleaning and securing (at night) of such tables and chairs are all responsibilities that need allocating. The restaurant tenants likely should bear either the main cost, or the actual task, of handling these issues. As for tented eating areas used by individual tenants 鈥� these are often placed in parking spaces, which can render certain challenging situations even more difficult (not to mention any questions about zoning code requirements that may arise).

4. Changes in space needs

It has been written that, on average, around 60 percent of a restaurant鈥檚 leased area is typically devoted to dining space. That rule of thumb percentage may no longer hold, given the pressure from demand for outdoor seating options and the increased emphasis on takeout discussed above. Additionally, the line between 鈥渋ndoor鈥� and 鈥渙utdoor鈥� is being further blurred, as tenants are increasingly including amenities like roll-up doors in their proposed build-outs to increase outdoor eating capacity. Lease restrictions on permitted 鈥渙utdoor鈥� activities in project common areas may increasingly need to affect activities inside tenants鈥� spaces too, as the line between inside and outside of leased space begins to blur.

5. Dealing with future shutdowns

For many small restaurant tenants, the obligation to pay rent and costs is backstopped by a personal guaranty from the owners; a failed store means not only lost investment, but also the possibility of a personal lawsuit to recover the landlord鈥檚 lost rent. As a result, more tenants are requesting, and receiving, rent abatement provisions in their leases to address future shutdowns affecting on-site dining. Currently, these abatements are structured as proportionate rent reductions based upon occupancy reductions. If trends shift toward more takeout-based revenue, perhaps other solutions will arise, such as temporary 鈥減ercentage rent鈥� structures. Regardless, tenants are now less willing to shoulder shutdown risks alone.

Jeffrey Kapp is a Jordan Ramis PC shareholder. He has special expertise handling complex commercial real estate and finance transactions. Contact him at 503-598-7070 or [email protected]. This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91视频 guarantees the accuracy or completeness of any information published herein.