Outdoor Dining is Here to Stay, With Conditions
Background
New York City’s COVID-era outdoor dining program changed the City’s restaurant business, permitting restaurants to increase their capacity and income while permitting patrons to enjoy dining al fresco. That has benefitted both restaurant tenants and their landlords at a time of plentiful retail vacancies. Some New Yorkers have not viewed this as a positive development, though, as they have been frustrated with the many unregulated and abandoned structures taking up street parking, as well as the increased noise and trash resulting from these outdoor dining structures—to say nothing of the patchwork and sometimes dilapidated condition of some makeshift dining spaces. In that regard, the New York City Council (the “Council”) decided that it is time for the program to mature and come under stricter uniform regulation.
On August 16, 2023, Mayor Adams signed Intro. 31-C into law and unveiled “Dining Out NYC” – the City’s permanent outdoor dining program and the largest outdoor dining program in the nation. In addition to allowing for sidewalk dining year-round, the City will now permanently allow roadway dining but only during the warmer eight months of the year (i.e., from April through November).
How it Works
Moving forward, restaurant owners who wish to continue their outdoor dining operations will be required to apply for either a sidewalk or roadway license and to submit a petition for a revocable consent on or before the date set forth by the Department of Transportation (the “DOT”). A revocable consent, which can be cancelled at any time by the City, is granted by the DOT for a term of 10 years and allows an individual or organization to construct and maintain certain structures on NYC streets and sidewalks for outdoor dining. Under the new legislation, the DOT will administer licensing of both sidewalk and roadway cafes, sheds and other structures, and will promulgate and enforce rules pertaining to their operation, design, siting, and material, in continued coordination with other city agencies. Any sheds or other outdoor dining structures that do not comply with DOT rules will have to be removed before the earlier to occur of (i) thirty days after the determination by DOT to grant or deny a revocable consent to operate a sidewalk or roadway café, or (ii) November 1, 2024. DOT guidelines have not yet been determined, but under the legislation, restaurants can offer outdoor dining from 10 a.m. until midnight and will be required to pay fees based on their location and square footage, with a higher premium being charged for locations that are south of 125th Street in Manhattan. Once the rules are finalized by early 2024, restaurants will be able to apply for the permanent program on the DOT’s online application portal.
Implications
Tenants interested in offering outdoor dining should become familiar with the new requirements associated with outdoor dining to comply with the new regulatory regime. It is important for tenants to make sure the proposed space meets all legal and zoning requirements for the intended use. If this information is not confirmed prior to lease signing, or if the tenant will be required to obtain approvals prior to its occupancy and opening for business, then the tenant should confirm that the lease commencement is contingent upon receipt by the tenant of all such approvals and fulfillment of all such requirements. To ensure a tenant’s compliance with the new outdoor dining program, landlords may wish to consider requiring an increased security deposit. In response to such a request from the landlord, a tenant may consider negotiating a so called “burn-down” provision in the lease to allow for periodic returns of portions of the security deposit to tenant at designated lease term milestones, provided that the tenant has not defaulted under the lease and has complied with any increased responsibilities under the new legislation.
As an additional safeguard, tenants can consider negotiating an early termination right to be available to a tenant if a tenant’s application for consent to an outdoor dining permit is denied or revoked at any time during the lease term, thereby making the effectiveness of the lease contingent upon obtaining and maintaining a sidewalk or roadway permit.
Landlords and tenants should also become familiar with the potential unintended consequences of this legislation. Outdoor dining sheds increased restaurant seating space during and after the pandemic, which improved restaurant tenants’ cash flow. Restaurants with outdoor roadway dining structures will be required to deconstruct and store such structures from November 30 until March 31, potentially causing restaurants to lose money, which, in turn, could lead to layoffs and hardships with respect to rental payments. Tenants who own their outdoor dining structures will be required to pay for storage costs while other tenants might elect to lease outdoor dining equipment and/or materials and could be subject to rising future costs to do so annually.
Commercial landlords and tenants who would like to learn more about this new program or are contemplating new lease agreements for restaurant space in NYC are encouraged to contact our Real Estate and Litigation practice groups at Moses Singer, who regularly advise clients with respect to commercial leasing, lease disputes, and regulatory disputes.