This article is written by Kapil Nikam, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “5 Most Important Contracts for Running a Restaurant Business or Hostel Successfully?”.

Introduction

Hostel and restaurants businesses are important businesses, now India has also become a tourism hub and the hotel industry is growing across India. Some cities and areas known as an industrial area, after mix economy industrial growth are not restricted to the urban area considering these aspects restaurant businesses are growing day by day. Hostel business is also one of the important business several cities are known as educational hubs such as Pune, Manipal, New Delhi, etc. In these cities, Hostel business is growing it is not limited to students fraternity but working people also availing hostel facilities. In view of aforesaid hostel and restaurants, business is very popular and important. One needs to enter various types of agreements to run this business. Compliance aspects are also crucial to run Restaurant and Hostel Business. In the present article, we are visiting 5 most important contracts to run these businesses.

1. Lease and Leave and License Agreement

Lease and Leave and License agreements are important agreements for running Hostel and Restaurant business. It is not feasible sometimes to purchase a property for running said business so that entering Leave and License Agreement and Lease Deeds are the best options. There is a difference between leave and license and lease deed but in this article, we are not going to discuss the difference between lease and license, only for readers understanding, the lease is the transfer of an interest in immovable property. However, license interest is not transferred in the property, it is for bare permission and the Licensee is a mere permissive user of the premises. By entering said agreements you have the right to enter premises and run the business for a specific period as per contractually agreed between the parties. Before entering into these contracts, proper due diligence of property should be carefully done so that potential disputes would be avoided as Hostel and Restaurant businesses are in such a nature consumer wants a peaceful environment. To run any business successfully nuisance free property is one of the essential factors. There are various terms and clauses which have to be carefully drafted before entering the Lease or Leave and License Agreements such as the period of the lease/license, lock-in period, obligations of the owner and lessee, notice period, security deposit, to run the business smoothly these clauses and understanding are very crucial.

We can see several business houses are running Hostel and Running businesses which are very successful based on Leave and License and Lease agreements. For example, OYO has entered various lease agreements with owners in several locations. Some of the areas instead of leave and license agreement or lease agreements Business Conducting Agreements are entered between the parties. Specifically, in Mumbai, the Business Conducting Agreements are entered between the parties. In Business Conducting Agreements profit sharing ratio is shared between the owner of property and licensee means the owner is not restricted to receive rent or compensation.

2. Management Contracts or Facility Agreements

Management contracts or facility agreements are also important. To run a Hostel and Restaurant business the owner can’t look into every aspect of the business and property. There are various statutory compliances which are required to be done, failing which are consequences for monetary or penal liability from the respective authority. By executing said agreements owner can carve out his liability towards the respective agency. Various corporate groups are providing services of facility and management pertaining to the properties and they are providing administrative support and look at all facilities in the business. These types of agreements are also entered in the form of Service Agreement as both businesses need specific services relating to the operation, management, and supervision of the Restaurant or Hostel. In this agreement, some clauses should be diligently drafted such as the responsibility of the 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.

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3. Catering Contract

Catering Contract is necessary for Hostel and Restaurant business. Before entering the contract tender process can be initiated, the government undertaking Hostels and other Hostels which are run by the private entities are also issuing tender so as enable to them to select a proper contractor for catering services. During the tender process qualifications term can be laid down such as rules pertaining to the daily functioning of a mess, general structure of the menu, labourer rules and regulations, mess related infrastructure rules these terms can be set out at the tender process. After the selection of a successful bidder, the catering agreement can be executed between the parties. However, for private corporate groups, it is not necessary to initiate the tender process they can directly enter agreements after due negotiation. Catering contract should be very carefully drafted catering terms, responsibilities related to cost, permissions of local authorities, caterers insurance relating to its services indemnification if any damages caused to the property, termination of the contract, notice period these clauses are very important in said business es. We have seen the significance of catering agreements. 

4. Franchise Agreements

Franchise Agreements means right or license granted by a Company to an individual or group to market its product or services in a specific territory. Most of the stores, restaurants are operating under such type of arrangements. For example, McDonald’s maximum restaurants are a franchised basis. MacDonald’s main strategic partners are their Franchise Holders. In Franchise Agreements Parent Company provides a license to use its Franchisee to use its brand name and also provide the business model and how to run that particular unit, also provide guidelines about the operation and maintenance of a particular unit. Nature of the Business is the same everywhere the is no distinction amongst the Franchisee throughout India. It is realized that if you visit some franchise models such as MacDonald, KFC, Pizza Hut, Subway their pattern is the same everywhere actually it is a condition in the Franchise Agreement. Even it appears that the test of food is also similar in various Franchise of the same name. Clauses in the Franchise Agreements are crucial as a brand name is very important and most of the people visiting such restaurants due to good brand name. Franchisee Agreements are not transferable also right to use trademarks logos has been given. The Franchisor always retains termination right with him in the event of any breach done by the Franchisee. Also, commercials such as fees and how to divide profits are important. Term of the agreement, renewal clause, intellectual we property-related rights.  

The franchisee needs some training relating to respective business and Franchisors provides such training so there must be specific clause and modalities of training need to be defined in the agreement Franchise Agreements are very important agreements in the restaurant business.

5. Partnership Deeds

The Hostel and Restaurant business is such, most of the time partnership is required to run said business. Partnership Deeds are the sketch amongst the partners that outlines the terms and conditions between the partners. In order to smooth functioning in future terms shall be carefully drafted in the Partnership Deeds so as any potential dispute can be avoided. Financial structure in the agreement should be specified like as profit share formula, investment done by the partners, responsibilities of partners, percentage of ownership, the process of determination of partnership, dispute resolution process these are important terms. Partnership Deeds are very common in business transactions since many individuals and startups also venturing Restaurant and Hotel business. considering aforesaid we can understand that how Partnership Deed or Agreements are very important in Hostel and Restaurant business. 

Conclusion

There are various important agreements in relation to the Hostel and Restaurant business. We have seen the five most important contract agreements to run Hostel and Restaurant business. Each contract has a significance in relation to the said business. Without leave and license and lease any business house can not occupy/possess any premises legally. Facility Management Agreement necessitates to set up a day to management service, without execution of catering contract food-related services can not effectively be arranged. Hostel and Restaurant business’s food facilities should be very good so that Catering Contracts need to be executed carefully. Franchise Agreements are the foundation of Restaurant Business. For the long term, contractual bonding Partnership Deed is also very important. This article shall be useful for those persons or entities who are desire to enter Hotel and Hostel Business. It would be advisable to take the assistance of a good lawyer considering it’s the financial and legal implication on the business. The proper stamp duty and registration of agreement as per state local laws need to be examined before entering the aforesaid contracts since respective documents/contracts/agreement may be impounded if any dispute arises between the parties.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.