Media Contact: Barbara Fornasiero; EAFocus Communications; barbara@eafocus.com; 248.260.8466
Detroit —July 23, 2025 —- 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, industry reports note that more than 340 full-service restaurants, including iconic brands such as Red Lobster, TGI Fridays, Hooters, Buca di Beppo, and On the Border, closed due to bankruptcy. John Stoddard, a bankruptcy lawyer and commercial litigator with Michigan-based Dalton & Tomich, says the wave of closures highlights several emerging legal and strategic risks—but also opportunities— for property owners, lenders, and other stakeholders.
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 carryout and fast casual.
- Over-saturation of full-service concepts in markets with declining foot traffic.
“In addition to cost, credit and labor factors, consumer behavior changed, and many sit-down chains didn’t – or couldn’t – adapt quickly enough,” Stoddard said. “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.”
Bankruptcy and Lease Terminations on the Rise
Stoddard notes that 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; and preference claims where landlords and vendors must return payments made shortly before the bankruptcy filing,” Stoddard said. “These issues create legal landmines for commercial property owners and secured lenders if they’re not prepared.”
Stoddard says the thinning of the restaurant landscape makes a strategic legal response more important than ever for creditors and landlords. He offers the following considerations:
- Audit leases and loan agreements. Now is the time to ensure lease provisions include strong remedies in the event of tenant insolvency; personal guarantees that are enforceable; and bankruptcy-resilient clauses on security deposits and default interest
- Monitor Tenant Health. Landlords and lenders to a restaurant chain must stay alert to early distress signs: late or partial rent payments; operational changes (reduced hours, menu cuts); and public announcements of restructuring or layoffs.
- Have a Bankruptcy Playbook. If a tenant or borrower files Chapter 11, act 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, and assess the options for recovering possession or re-leasing the space.
- 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, and specialty retail, grocery, or mixed-use development.
Where Are the Opportunities?
Despite the turmoil, there are early signs of stabilization, if not recovery, in parts of the full-service 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, Stoddard says this presents a window to renegotiate leases on favorable terms, acquire discounted assets in bankruptcy sales, re-tenant space with stronger-performing concepts, and invest in real estate conversion or repositioning for stronger, long-term returns.
“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, recent bankruptcies underscore the importance of proactive legal and financial planning,” Stoddard said. “Whether it’s enforcing lease rights, negotiating workouts, or recovering assets through litigation or restructuring, there are opportunities to turn market volatility into a strategic advantage.”
About Dalton & Tomich
Dalton & Tomich PLC, based in Detroit, is a versatile national law firm that represents religious organizations in property disputes. This includes cases involving religious groups in land use and zoning disputes addressed through the Religious Land Use and Institutionalized Persons Act (RLUIPA), as well as litigation over property ownership between denominations and local churches. The firm also assists property owners in Michigan with site plan approvals, zoning appeals, and land use disputes related to zoning, easements, boundary line disputes, and water access rights. Additionally, the firm collaborates with lending institutions, privately held businesses, and nonprofits, often serving in a general counsel capacity. To learn more about our services for businesses and religious organizations, visit https://www.daltontomich.com/.
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