MOST IMPORTANT CONTRACTS FOR RUNNING A RESTAURANT OR HOSTEL BUSINESS SUCCESSFULLY

MOST IMPORTANT CONTRACTS FOR RUNNING A RESTAURANT OR HOSTEL BUSINESS SUCCESSFULLY

Restaurants run the spectrum of small, high-end dining, fast paced eateries to comfort food eateries, whereas, hostels are also not limited to the student fraternity anymore. Businessmen travelling from city to city for months or regular working people look for hostel facilities too. Hostels and restaurants in India are now a largely growing sector where people contribute to the growth immensely. Whether a restaurant is privately owned or a franchise operation of a large chain, it is bound by agreements for services with different suppliers, contractors and employees. Compliance with these contracts is a primary factor to run a business successfully. However, before signing or drafting such agreements, the terms should be made as clear as possible so that minor disputes do not arise due to misinterpretations. The most crucial contracts to run a restaurant or hostel business successfully are discussed below.

• LEASE & LEAVE AND LICENSE AGREEMENTS: Lease and Leave and license agreements are very important to run a hostel or restaurants business smoothly. It is not always possible or feasible for an owner to purchase a plot or property to set up his restaurant or hostel, hence these agreements and deeds are the best options. Signing the contracts gives the restaurant or hostel owner the permission to enter the premises and run his business for a specific period of time, as per contractual agreements. There are several terms, conditions and clauses that should be mentioned in these contracts to prevent future disputes between both the parties. These carefully drafted clauses and terms include the security deposit, lock-in period, lease period and many more. In order to prevent any sort of nuisance and to run the business smoothly, the understanding of every clause mentioned in the agreement is very important. The licensee should scrutinise the property before signing the agreement and any alterations, if required, should be discussed with the landlord immediately. However, certain businesses enter into Business Conducting Agreements instead of such leases. In these agreements the profit sharing ratio is divided between both the parties, i.e. the owner and the licensee. Thus, the parties usually opt for the former agreement.

   

• FRANCHISE AGREEMENTS: Restaurants and hostels that run a franchise business with large chains need franchise agreements. These are agreements between the company owner and an individual who provides services to the franchisor in a particular territory. These agreements lay out the rules and regulations very strictly as the clauses are extremely important alongwith the brand name. The license to use the brand name and logo is given to the franchisee by the parent company based on mutual agreement and trust. They provide guidelines for operations and maintenance so that the brand name is not tampered. The franchisee is given some training regarding the same by the franchisor himself. This training is bound by regulations too. The Franchisor always retains termination rights with him in the event of any breach done by the Franchisee. These agreements form the base for many restaurant businesses and thus play a very important role in their smooth flow.

   

• PARTNERSHIP DEEDS: The restaurant and hostel businesses often require a partnership. Partnerships agreements outline the terms and conditions of a partnership between two parties to run a business smoothly and to avoid any potential disputes. These agreements are very common in business transactions as it provides a financial structure to any new business. It provides a sketch regarding the investments done by both the partners, the profit sharing ratio and the responsibilities of the partners. Partnership agreements are a wise decision for any entrepreneur who is willing to enter huge business sectors like restaurants and hostels.

   

• EMPLOYMENT AGREEMENTS: Any restaurant or hostel requires employees to operate efficiently. In order to avoid disputes and use the employees’ skills to their maximum potential, certain rules and regulations are formulated. These regulations are written down in a contract between the employer and the employee. Employment contracts state the terms of employment such as pay, benefits and disciplinary procedures. Although employment contracts are not necessary to hire an employee, they are desirable as they lay down rules and regulations for the employment.

• MANAGEMENT CONTRACTS OR FACILITY AGREEMENTS: It is practically impossible for the owner of a restaurant or a hostel to look into all the matters individually. There are a number of liabilities be it legal or monetary, that needs special attention. In this agreement, some clauses should be drafted as the responsibility of service provider or facility manager, team of the facility management company, the fee payable to the service provider, payment and accounting charges, termination clause, force majeure clause, responsibilities of permissions, consents, approvals, general obligations of the parties branding advertising and public relations.

Each contract or agreement plays an important role in the restaurant and hostel business. There are various other contracts that are important for both the businesses individually, for example, catering contracts for a restaurant business. It is always advisable to hire a skilled lawyer and take his assistance for the financial and legal implications. The agreements should be drafted carefully with clarity in the terms and conditions so that disputes regarding it do not arise.

BY:-

Ridhika Kapoor