Ghost Kitchen Leasing

Food delivery is here to stay and apps like SkiptheDishes, Tutti, UberEats and others are driving the trend forward. Together with this trend is the rise of ghost kitchens: a.k.a. virtual kitchens, cloud kitchens, and dark kitchens. Ghost kitchens are cooking facilities that offer food for delivery (and sometimes take-out), but with no other storefront.

Leasing out a ghost kitchen can be a good bonus for a budding restauranteur. No dining space is needed only a licensed kitchen area (and possibly pick-up table). This means lower start-up costs and reduced operating expenses. A chef who wants to launch their own restaurant is taking less of a risk if their endeavor does not work out. Alternatively, a ghost kitchen might be a good way to get back into the restaurant industry, especially if the restaurant already has a following. Many ghost kitchen culinarians share space with other chefs in order to further reduce leasing costs as well as the costs of cooking equipment. Another cost benefit of opening a ghost kitchen is the lack of the need to be in the most desirable location given patrons never attend for the ambiance. The kitchen just needs to be close enough for timely delivery to its intended patrons.

Likewise, property owners with vacant space are able to benefit by leasing their unoccupied property to ghost kitchen tenants. Ghost kitchen tenants have been leasing not only defunct restaurant space, but other retail space to include space in malls, warehouse space, storage space, trailers in parking facilities, unused hotel kitchens and space used by others during the day, but not used at night.

A ghost kitchen agreement of course, needs to be documented in writing as would any restaurant lease. In addition to typical leasing provisions, such as indemnification, repair maintenance and cleaning, and compliance with applicable laws, the parties should consider:
• Is the space properly zoned or licensed for use as a delivery kitchen? If not properly zoned/licensed or if improvements are needed to be made to make the ghost kitchen safe and ready for operation, who pays for/performs the work?
• With landlord approval, will the tenant be permitted to license its space to other restauranteurs as shared space?
• Will rent be fixed or based on a percentage of gross sales or a combination of both?
• Are there any restrictions as to the type of food prepared, the menu, or the hours of operation?
• Who pays for utilities? What, if any operating expenses will the landlord charge the tenant?
• Is signage necessary? What if there are multiple tenants?

Food delivery is expected to still be a high priority in post Covid times. If you think a ghost kitchen might be a winning proposition for you, contact us for more details.