Written for owners of restaurants, cafes and coffee shops, bars, takeout and delivery kitchens, food trucks and bakeries with seating in the US, with state detail for California, Texas, New York and Florida.
The short version
- Cap the personal guaranty before signing.Limit it in amount and time, or ask for a good guy guaranty that ends when you return the keys with rent paid.
- Calendar every auto-renewal notice deadline.POS and processing contracts can auto-renew with early termination fees. Before you sign, find the notice deadline and put it in your calendar.
- Follow tax clearance steps before you pay.For example, New York's advance notice or California's clearance certificate. Skip them and the seller's unpaid sales tax can become yours.
Most restaurant contracts are written by the other side: the landlord, the POS company, the equipment lessor, the delivery app, the franchisor. When you buy a restaurant, you can also inherit the seller's unpaid sales tax along with the ovens. A handful of clauses and one notice do most of the damage.
Red flags in leases and vendor contracts
- Unlimited personal guaranty on the lease: cap it in amount and time, or seek a 'good guy' guaranty that ends when the keys are returned with rent paid.
- Uncapped CAM (common area maintenance) and operating expense pass-throughs: cap controllable increases and get audit rights.
- No exclusive use clause in a shopping center: protect your cuisine or category.
- A radius restriction: it can block a second unit nearby.
- A relocation or demolition clause: require compensation for the build-out.
- Delivery platform exclusivity with price parity: compare with your own ordering margin first.
- POS or processing contracts that auto-renew with early termination fees: calendar the notice deadline.
- An equipment lease with a hell-or-high-water clause: total the payments against buying.
- A merchant cash advance with a confession of judgment or a personal guaranty of performance: have an attorney read it first.
Buying a restaurant: successor liability
Sales tax follows the business
California: withhold from the price until the seller produces a CDTFA tax clearance certificate. New York: notify the Tax Department on Form AU-196.10 at least 10 days before paying or taking possession, or the buyer is liable. Texas: withhold until a certificate of no tax due. Florida: the buyer is liable unless the seller provides a certificate. As of Oct 2026.
Cal. Rev. & Tax. Code 6811 and 6812; N.Y. Tax Law 1141(c); Tex. Tax Code 111.020; Fla. Stat. 213.758
| Paid to the seller | $365,000 |
| Seller's unpaid sales tax, paid from escrow | $35,000 |
| Purchase price | $400,000 |
The buyer filed Form AU-196.10 at least 10 days before closing, and the Tax Department reported $35,000 of the seller's unpaid sales tax, which escrow paid from the price. Without the notice the buyer could have inherited it. As of Oct 2026.
In California, bulk sale law also still covers restaurant asset sales: notice to creditors before the sale, through escrow (Com. Code 6101 and following), on top of the liquor license escrow. Owner-operated restaurants usually sell as an asset deal priced on seller's discretionary earnings (SDE) or on the equipment, lease and license, so have the attorney cover the purchase agreement, the bulk sale and the license transfer together.
SDE includes the seller's own labor. If you will pay someone else to do that work, that salary is not profit you are buying.
Franchises
Franchise disclosure
The franchisor must give you the Franchise Disclosure Document at least 14 calendar days before you sign or pay. Financial performance representations appear only in Item 19. California and New York also require franchise registration. As of Oct 2026.
16 CFR 436.2; Cal. Corp. Code 31110; N.Y. Gen. Bus. Law 683
If a franchise salesperson tells you what stores take, ask where it is in Item 19. If it is not there, it should not have been said. Build your own model from current franchisees' figures, and have franchise counsel review it before you sign or pay.
Asked in Greymill
The rule: in New York, file Form AU-196.10 at least 10 days before you pay or take possession, or you, the buyer, are liable (As of Oct 2026). A week is not enough.
How it protects you: the Tax Department can then report what the seller owes, and escrow can pay it from the price. Say it reports $35,000:
Tax paid from escrow: $35,000
To the seller: $365,000
On the lease: if you are taking it over, cap any personal guaranty (your own promise to cover the lease) in amount and time. Or ask for a good guy guaranty that ends when you return the keys with rent paid.
Paste the guaranty and renewal clauses here and I'll flag what to push back on.
Ask it about your own business
Paste this into Greymill with your own figures, and Contracts & Disputes works it through for your business.
I run a restaurant, cafe or bar in [state], in the US. I am [signing a lease / renewing with [vendor] / buying a restaurant for [amount] with seller's discretionary earnings of [amount] / considering a franchise]. Here are the key terms: [paste the guaranty, CAM, exclusive use, radius, renewal and termination clauses]. Flag the red flags, list every notice deadline to calendar, and set out the tax clearance and transfer steps for my state, with the questions for my attorney.
More for restaurants, cafes and bars in the US
- Pricing a plate to a food cost target and knowing your breakeven coversSet menu prices from plate cost, judge dishes by dollars of contribution, watch prime cost, and show any mandatory fee the way your state requires.Read the lesson
- Keeping cash flowing when sales tax, payroll tax and gift cards are not really yoursCard money arrives daily, but part of it belongs to the state, the IRS or a gift card holder, and a 13-week model keeps it apart and shows an expensive advance for what it is.Read the lesson
- Claiming the FICA tip credit and taxing service charges correctlyYou pay payroll tax on your servers' tips and can claim most of it back through the 45B credit, while a mandatory service charge changes both your sales tax and your payroll.Read the lesson
- Opening, buying or keeping a liquor license, and staying clear of dram shop claimsThe permits around a liquor license, how a transfer works when you buy a licensed business, and what server training and your state's dram shop law mean for your risk.Read the lesson
- Paying servers right: tip credits, tip pools and service charges in your stateYour state, and sometimes your city, decides the tipped wage, who can share the pool and how a service charge is paid, and mistakes come back with liquidated damages.Read the lesson
- Winning direct orders and better reviews without overpaying the delivery appsGrow the channels you control, check what each platform really costs you, and ask for reviews in a way the FTC allows.Read the lesson
- A failed inspection, an allergic reaction or an incident after drinks: the first 24 hoursWhat to fix, keep and say, and who to call, when an inspector, an allergic guest, an injured third party or a demand letter puts the business at risk.Read the lesson
Open the interactive lesson · Every restaurants, cafes and bars lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- Rev. & Tax. Code 6811, 6812 (Growth, buying, selling and franchise disclosure (fdd))
- Tax Code 111.020 (Growth, buying, selling and franchise disclosure (fdd))
- Fla. Stat. 213.758 (Growth, buying, selling and franchise disclosure (fdd))
- Com. Code 6101 and following (Growth, buying, selling and franchise disclosure (fdd))
- 16 CFR 436.2, 436.5(s) (Growth, buying, selling and franchise disclosure (fdd))
- Corp. Code 31110; NY Gen. Bus. Law 683 (Growth, buying, selling and franchise disclosure (fdd))
- Texas Labor Code 406.033 (Hard cases: insurance, growth and exit)