Leasing a hotel or restaurant: the complete guide

Leasing out a hotel or restaurant gives owners predictable income without operational risk – and gives operators the chance to take over an established business without financing a property purchase. For the arrangement to work over many years, several things have to align: the right tenant, a realistic rent, and a contract that protects both sides. This guide walks you through the entire process – from preparing the property and finding the right operator to every essential clause in the lease agreement.

Lease or rent – the key difference

In everyday language the two terms are used interchangeably, but legally they are not. A rental agreement covers the use of the property alone. A lease additionally entitles the tenant to draw the profits from the business itself – they take on not just rooms, but a running operation including equipment, licences and, in most cases, an existing clientele.

This is precisely why leasing is the standard arrangement in hospitality. And it is why the owner has a direct interest in the tenant's commercial success: only a business that performs pays its rent on time and for the full term.

Who might take on the lease?

Depending on the type, size and location of the property, very different groups come into consideration. This choice shapes the entire marketing approach:

Independent hoteliers and restaurateurs – ideal for boutique hotels, country inns and family-run businesses where the host's personality carries the concept.
Restaurateurs with hotel experience – typically interested in country hotels, guesthouses and properties with attached food and beverage operations.
Hotel groups and franchise partners – particularly for city hotels, business hotels and properties with supra-regional potential.
Investors with their own operating concept – looking for locations where a professional management team can be deployed.

Step 1: Preparation

How the property is presented determines how many qualified enquiries you receive at all. A comparison from everyday life: before a used car is advertised, it is washed, polished and photographed from every angle in good light. For a business worth many times more, the standard should hardly be lower.

A solid set of documents includes:

Professional photographs of the dining areas, kitchen, guest rooms and outdoor spaces
Floor plans of all areas, including any owner's or manager's apartment
A complete inventory list naming the major equipment and its manufacturers
An honest assessment of the competitive situation at the location
Financial results from recent years

The last point is regularly underestimated. Documented figures build trust – and they are the precondition for a prospective tenant to obtain financing at all. A virtual tour additionally reduces the number of viewings that lead nowhere.

Step 2: Marketing

Since the pandemic, and given the broader economic climate, good operators have become noticeably more cautious. Start-up costs such as goodwill payments, deposits and investment in their own style are difficult to finance through a house bank – the credit rating of the sector as a whole has suffered.

For you as the owner this means the pool of serious candidates has grown smaller, and it needs to be addressed deliberately. Reaching the right applicant at the right moment through the right channel is the genuine skill here. A broad listing on a general property portal reaches many people, but rarely the right ones.

Step 3: Reviewing applications and shortlisting

Incoming applications vary enormously – from a one-line expression of interest to a detailed account of a full career. Genuinely assessing suitability takes time: dozens of conversations, plus research into previous positions.

A two-stage approach has proven effective. First, a self-disclosure form is obtained from every applicant before any conversation takes place. From those conversations a shortlist emerges, and only that shortlist is invited to view the property.

In the end, alongside professional suitability, the personal dimension almost always decides the matter. Whether the chemistry between owner and tenant works becomes clear during the viewing – and in a relationship intended to last ten years or more, that is not a soft factor but a hard one.

Step 4: The lease agreement in detail

The lease agreement is the heart of the arrangement. We strongly recommend having it reviewed by a lawyer for completeness and legal compliance. Anyone drafting it themselves should at minimum work from legally sound templates. The following elements belong in every contract.

Contracting parties

The parties may be private individuals or companies. The classification matters: where a private individual acts in a commercial capacity, the agreement is not a consumer contract. That has concrete consequences, such as the exclusion of the right of withdrawal.

Subletting should also be addressed here – for instance where a private individual leases on to their own operating company.

Leased property and equipment

The leased area is best defined unambiguously using a floor plan. Beyond that, equipment is almost always included. Major items should be listed in full with designation and manufacturer; this inventory list then forms an annex to the contract.

Small items such as crockery and cutlery are generally no longer included – the effort of compiling such a list bears no relation to its value.

Term

For hotels, terms of five to fifteen years are customary, depending on the investment volume and the operating concept. Two basic options exist:

Fixed-term agreement – ends automatically without notice and provides planning certainty for both sides.
Open-ended agreement – more flexible, but requires notice, for example semi-annually at the end of the lease year.

A minimum term or a waiver of termination rights can be agreed in addition. Both make sense where one side invests substantially or valuable equipment changes hands.

Rent

The rent is freely negotiable and is based on existing or realistically achievable turnover. We have set out how to calculate an appropriate figure in a separate article: Rent times eight – what is reasonable?

Three models are common:

Fixed rent – conventional and predictable for both parties.
Stepped rent – increasing in stages, usually over the first three years. It gives a new operator room until target turnover is reached and has become largely standard.
Turnover-based rent – flexible but demanding. We advise against a purely turnover-based model: certifying the figures requires external service providers and creates ongoing costs. Without that, the figures cannot be verified – which strains the relationship between owner and tenant as much as the relationship with the financing bank.

Index-linking clause

For long terms in particular, a sound index-linking clause is indispensable. It ties the rent to the consumer price index at a defined reference date and adjusts it automatically for inflation or deflation. Both parties are protected against economic swings without having to renegotiate every year.

Deposit

As a rule of thumb, the deposit should not exceed six months' net rent; three months is customary. A higher figure is only justified where particularly valuable equipment is handed over and no goodwill payment is made.

There is no legal obligation to hold the deposit in an interest-bearing account. A transparent provision in the contract nevertheless builds trust and prevents later disputes.

Goodwill payment

Goodwill payments are customary in hospitality, particularly when one tenant succeeds another. What matters is a realistic calculation – and this is one of the most frequent sources of error. Points to observe:

Banks rarely finance goodwill payments in hospitality. Every sum demanded directly reduces the pool of possible tenants.
Business values should be evidenced through management accounts, and equipment through original invoices.
The goodwill figure must not exceed the book value in the fixed-asset account.

An inflated demand is probably the surest way to stall a letting for months. What counts in the end is not the desired figure but what suitable candidates can actually pay.

Permitted use

The contract must define permitted use unambiguously. An example from practice: converting a conventional restaurant into a shisha bar fundamentally changes the neighbourhood, the permit situation and the value of the property. A precise restriction on use prevents such conflicts before they arise.

Maintenance

It must be clear which measures the tenant bears and which remain with the owner. The customary dividing line runs between cosmetic repairs and routine servicing on one side, and the building fabric, roof and core technical installations on the other.

Why two separate agreements make sense

In practice it is often advisable to conclude two separate agreements: one covering the property and one covering FF&E – furniture, kitchen technology and operating equipment.

The advantages:

Transparency – property and equipment are valued separately, which greatly simplifies negotiations.
Flexibility – equipment can be replaced or renewed without touching the property agreement.
Tax advantages – equipment can be depreciated separately.

What is handed over beyond the property

A lease generally covers considerably more than rooms:

FF&E – furniture, kitchen technology and other equipment.
Goodwill – brand name, regular clientele and established booking channels.
Licences and rights – food and beverage concessions, permits for wellness areas, existing accounts with booking platforms.

The most common mistakes

Unclear or incomplete contract clauses that only surface in a dispute
No or inadequate credit assessment of the tenant
An over-optimistic rent calculation that burdens the business from the outset
Excessive goodwill demands that needlessly shrink the pool of candidates
No provision for exceptional circumstances such as officially ordered closures – since the pandemic, experienced operators insist on this from the start

Why a specialist broker is worth it

Leasing a hotel or restaurant differs fundamentally from letting conventional commercial space. A specialist partner contributes:

Market knowledge – we know the target groups, from the independent restaurateur to the international hotel group.
Network – direct access to operators, investors and brands who are actively searching.
Pre-selection – we already know many applicants and save you dozens of conversations.
Contract experience – we have helped shape hundreds of lease agreements and draft the first version. That saves time at the lawyer's office and costs for you.
Discretion and reach – confidential direct approach and broad marketing are not mutually exclusive. On request, marketing is handled entirely off-market, without any public listing.

Frequently asked questions

What is the difference between renting and leasing?

A rental agreement covers only the use of the property. A lease additionally entitles the tenant to draw the profits from the business. This is why leasing is the standard arrangement in hospitality.

How long does a hospitality lease run?

Five to fifteen years is customary. The term depends on investment volume, location and concept, and is negotiated individually.

How high can the deposit be?

Three months' net rent is customary, six months is the maximum. Higher figures are only justified where particularly valuable equipment is handed over without a goodwill payment.

What is handed over with a lease?

Besides the property, generally furniture and technical equipment, brand rights, licences as well as existing contracts and booking channels.

Why are two separate agreements advisable?

One agreement for the property and one for the operating equipment keeps the valuation clearly separated, allows the equipment to be depreciated separately, and makes later adjustments simpler.

Which mistakes should be avoided at all costs?

Unclear contract clauses, missing credit assessment, over-optimistic rent calculation and excessive goodwill demands. Each of these can stall a letting for months or strain the relationship later on.

Conclusion

Leasing is one of the most reliable ways for owners to generate lasting income from a hospitality property without operating it themselves. Success is decided early: in the professional preparation of the property, in the selection of the right tenant, and in a contract that holds up even when things do not run smoothly.

If you are planning to lease out a property, or would like to know what rent is realistic for yours, please get in touch. The initial consultation is free of charge and, of course, confidential.

Leasing out a hotel or restaurant: the complete guide