The restaurant industry is in the middle of a massive contraction—and creditors, commercial
landlords, and adjacent businesses are feeling the ripple effects.
Since the start of 2024, over 340 full-service restaurants closed due to bankruptcy, ending a
three-year run of growth for sit-down chains. According to data from Technomic and Restaurant
Business, this included iconic names like Red Lobster, TGI Fridays, Hooters, Buca di Beppo,
and On the Border, among others. And even outside of bankruptcy, long-time chains like
Applebee’s, Frisch’s Big Boy, and Denny’s shuttered dozens of locations in a move toward
long-overdue consolidation.
At Dalton & Tomich, we help property owners, lenders, and other stakeholders protect their
interests when tenants or borrowers in the restaurant and hospitality industry face financial
distress. The wave of closures since 2024 highlights several emerging legal and strategic
risks—but also opportunities—for those on the creditor side.
🍽 Why Are Full-Service Restaurants Struggling?
The closures stem from a combination of macroeconomic and sector-specific pressures:
• Pandemic-era debt loads coming due at a time of high interest rates
• Labor and food inflation outpacing revenue recovery
• A permanent shift toward off-premise dining and fast casual
• Over-saturation of full-service concepts in markets with declining foot traffic
Simply put, consumer behavior has changed, but many sit-down chains didn’t—or couldn’t—
adapt quickly enough.
âš– Legal Trends: Bankruptcy and Lease Terminations on the Rise
Chapter 11 bankruptcy filings, like those of Red Lobster and TGI Fridays, often result in the
rejection of commercial leases, bulk closures, and unsecured creditors being left with
pennies on the dollar.
We’re seeing:
• Lease rejections as a common cost-cutting strategy in bankruptcy proceedings
• Delays in rent payments and growing arrears prior to filing
• A spike in forbearance negotiations between landlords and restaurant operators
• Disputes over personal guarantees, especially in franchisee-owned locations
• Preference claims—where landlords and vendors must return payments made shortly
before the bankruptcy filing
These issues create legal landmines for commercial property owners and secured lenders if
they’re not prepared.
🧠What Should Creditors and Landlords Do Now?
The restaurant landscape may be thinning, but that makes strategic legal response more
important than ever. Here’s what we recommend:
1. Audit Your Leases and Loan Agreements
Now is the time to ensure your lease provisions include:
• Strong remedies in the event of tenant insolvency
• Personal guarantees that are enforceable
• Bankruptcy-resilient clauses on security deposits and default interest
2. Monitor Tenant Health
If you’re a landlord or lender to a restaurant chain, stay alert to early signs of distress:
• Late or partial rent payments
• Operational changes (reduced hours, menu cuts)
• Public announcements of restructuring or layoffs
3. Have a Bankruptcy Playbook
If a tenant or borrower files Chapter 11, you’ll need to quickly:
• Consult an attorney immediately to assess the impact of first-day orders
• File a proof of claim
• Monitor for potential lease rejection or assumption
• Assess your options for recovering possession or re-leasing the space
4. Consider Redevelopment Opportunities
In some cases, shuttered restaurant sites—especially in high-traffic areas—can be reimagined
for:
• Fast casual or drive-thru models
• Medical or urgent care tenants
• Specialty retail, grocery, or mixed-use development
We regularly help landlords evaluate rezoning, sublease negotiations, and new site plans to
reposition distressed sites for stronger long-term returns.
đź’ˇ Where Are the Opportunities?
Despite the turmoil, there are early signs of stabilization—if not recovery—in parts of the fullservice
sector. Several well-known chains, like Chili’s and Olive Garden, are outperforming
industry averages and capturing business from fast food.
For savvy landlords and investors, this presents a window to:
• Renegotiate leases on favorable terms
• Acquire discounted assets in bankruptcy sales
• Re-tenant space with stronger-performing concepts
• Invest in real estate conversion or repositioning
âś… Final Thoughts
The restaurant industry is always evolving—but the pace of change today is uncommon. For
landlords, lenders, and suppliers tied to full-service restaurant concepts, these bankruptcies
underscore the importance of proactive legal and financial planning.
At Dalton & Tomich, we help our clients navigate these transitions—whether it’s enforcing
lease rights, negotiating workouts, or recovering assets through litigation or restructuring.
With the right legal partner, you can turn market volatility into a strategic advantage.
