Don’t Be Afraid: Growing Your Business With Ghost Kitchens

Opening a new restaurant is notoriously difficult. 

Staying open and growing can be even harder. More than half of new restaurants fail within their first year. If your restaurant has survived past that critical first anniversary or business is thriving, you may be thinking about expansion.  

Growth is exciting, but carries its own risks. Opening a new location involves many upfront costs and expenses including committing to a new lease, build-out and alteration expenses, hiring new employees, advertising and more. Recent surveys indicate that the average startup costs for a new restaurant location in the United States is almost $500,000. This is a significant sum even for established restaurant chains. 

One creative and cost-effective way to expand your restaurant is through the use of mobile “ghost” kitchens instead of traditional brick and mortar locations. A mobile “ghost” kitchen (also known as a “dark” kitchen) is a fully equipped commercial grade kitchen located in an outfitted tractor trailer truck. These rolling commissaries allow established restaurants the opportunity to test new markets and expand beyond their current delivery radius without the risk and expense of establishing additional physical dine-in or take-out locations. 

These rolling commissaries allow established restaurants the opportunity to test new markets and expand beyond their current delivery radius without the risk and expense of establishing additional physical dine-in or take-out locations. 

Mobile “ghost” kitchens can be leased on a short-term basis and are growing in popularity, particularly in high-cost metropolitan areas. While presenting an exciting and economical approach to tapping new markets, there are many legal issues to consider when opening a “ghost” kitchen. 

The truck owner must have the proper licenses and permits from the state, city or local government.  This should include, without limitation, a current business license and evidence of compliance with all health department rules and regulations, including food safety inspections. Further, the truck owner should be able to provide evidence of compliance with all U.S. Department of Transportation requirements, such as valid title, registration, and insurance on the truck. When deciding on who to contract with, it is prudent to ascertain whether the truck owner has any disciplinary or violation history regarding any of the above.

Additionally, the lease or license should ensure that the mobile “ghost” kitchen complies with all applicable land use and zoning codes and regulations.  For instance, the truck, while in operation, must be parked on land that is properly zoned for such commercial use.  

In some instances, the owner of the truck may have leased the truck to a third party to maintain and operate.  In such instances, in preparing the lease or license for the restaurant, it would be necessary to review any contracts between the truck owner and the third party to ensure compliance with all laws, rules and regulations.  Moreover, it would be important to confirm that there is nothing prohibiting the third party from subleasing or sublicensing the truck.

It is important to confirm that the term of the lease or license is at least as long as the term of any land lease between the truck owner (or third party lessee) and the owner of the real-property where the truck will be parked.  This is to ensure that the truck can remain on the land for the duration of the lease or license term. Moreover, if the land that the truck is situated on is mortgaged or subject to a ground lease, it is important to make sure that the operation of a mobile “ghost” kitchen on the land would not violate any terms of the mortgage or ground lease.

The lease or license should also contain a provision relating to repair, maintenance and upkeep obligations.  For instance, a lease or license agreement could be drafted in such a way so as to shift the burden of maintaining the truck and the kitchen equipment contained therein from the restaurant to the truck owner, as well as, to provide protection to the restaurant in the event that the kitchen were to become inoperable.  Moreover, in instances where the use of the mobile “ghost” kitchen is not exclusive to just one restaurant, there may also be additional considerations regarding the repair, maintenance and upkeep obligations for the shared equipment. 

The lease or license should also contain an insurance provision providing that the truck owner carries the appropriate level of liability insurance, naming the restaurant as an additional insured under the policy.  Additionally, the restaurant should also have its own general liability insurance to cover the operation of the mobile “ghost” kitchen.  

Despite the growing use of mobile “ghost” kitchens, there is no standard lease or license as each transaction will have its own peculiarities.  A prudent restauranteur can utilize these mobile “ghost” kitchens to explore new markets while avoiding many of the risks involved with a dine-in location but should seek the advice of counsel to carefully review any relevant ancillary documents, ensure all rules and regulations are adhered to, and to prepare the appropriate lease or license agreement on their behalf.

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