Collecting Percentage Rent from Restaurant’s Catering Fees

Q: My restaurant tenant recently began offering onsite and offsite catering services. Can I require the tenant to include catering fees in its gross sales for the purpose of calculating percentage rent?

A: Restaurant tenants price and bill catering services differently from the way they price and bill their usual services. They usually charge for catering on a per-person basis and that charge often includes the cost of food, drink, and wait staff, and sometimes a tip for the wait staff, if appropriate. Restaurant tenants that offer catering services typically send the customer an invoice and require it to pay part of the invoice in advance and the balance when the catering services are provided. Therefore, you may appropriately ask a restaurant tenant to include catering fees in its gross sales.

You may need to guide the restaurant tenant through the process to make sure it doesn’t include catering fees improperly. For example, the percentage rent rate for food sales and alcohol sales is often different, with the rate for alcohol sales being higher. If the restaurant bundles food and alcohol sales together in its catering fee and then doesn’t split those sales when calculating its percentage rent on each type of sale, you may not be collecting the correct amount of percentage rent that you’re entitled to.

Catering fees are often only specifically addressed in a restaurant lease if they are excluded from gross sales, capped, or at a different percentage rent rate from other sales. Even if the lease doesn’t specifically say catering fees must be included in gross sales, you may not be out of luck: That’s because most percentage rent leases have language saying that all revenue or sales generated “in, at, on, or from the premises” must be included in the tenant’s gross sales. Since catering fees arguably fit into this category, you have a strong argument that the tenant should pay percentage rent on them.