When reviewing a multipage, landlord-centric commercial lease it’s easy to get glassy-eyed and often overlook seemingly harmless language. The restoration provision, usually tucked away under the Surrender of Premises Clause in your lease, is a perfect example and could be a potential tripwire hiding in plain sight. It’s a legal obligation for a tenant to restore, at the landlord’s request, the premises back to the condition it was in before you moved in or remove alterations and improvements as the landlord sees fit. This could be a very expensive parting gift to your landlord should they exercise this right.
Normally, a tenant can negotiate the meat out of this provision or have it deleted entirely. In the past, landlords typically didn’t invoke this right because the subsequent tenant would benefit from the prior tenant’s improvements.
But increasingly, landlords are pushing harder for restoration in lease negotiations and more frequently exercising this clause as leases expire. Why? Because there has been a paradigm shift in how offices are being built out and tenants are increasingly opting for “open plan” layouts rather than private office-intensive build-outs. Therefore, if the exiting tenant has landlord-centric restoration language in their lease and the new tenant wants an open office in a private office space, you can be sure the landlord is going to try and stick that tenant with the cost of demolition. And, if the landlord tears down 30 perimeter private offices, the landlord is going to try its best to reserve their right to obligate that tenant to restore the offices at the end of their term if the new tenant wants them back.
So how can a tenant protect themselves from this potentially costly exposure? First, fight hard in the initial lease negotiations to completely strike the restoration provisions. If the landlord won’t budge, agree to restoration but only with the condition that the landlord must determine whether or not they’ll invoke their restoration right BEFORE you construct the improvements. That way, you’ll know whether or not you’ll be required to potentially spend extra money and time at the end of the term to restore your premises back to their original condition. You’ll also be in a better position to decide if this is still the right space for you and if the potential added expense is worth it.
If you’re not sure what the restoration requirements are in your lease, now’s a great time to call howardcommercial and have us conduct a thorough lease review for you. We’ll be able to provide you with our professional opinion of its implications and may be able to offer solutions to mitigate the exposure.
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