Why you need to know about the restoration clause in commercial leases.
You have been a great Tenant, we are sorry to see you go…here’s your bill.
Most commercial leases contain a restoration clause, under which a Tenant is obligated to return their premises to the Landlord in “base building” condition. This means that the Tenant would be required, at their expense, to remove not only their furniture and trade fixtures but all leasehold improvements, including walls, carpet, etc., and repair any damage from doing so.
A typical Restoration Clause reads as follows:
“The Tenant shall remove such of its Leasehold Improvements, trade fixtures, and telecommunication and computer cabling as the Landlord shall require to be removed at the end of the Term, and if the Tenant fails to remove the same within a reasonable period of time, the Landlord may remove the same and charge the cost of such removal to the Tenant.”
If the Landlord exercises this clause to its full extent, it can be a very expensive surprise. Restoring your current office to the base building would be a significant expense that has to be factored in when considering a relocation to new office space. If the tenant has to restore their office space at the end of their lease, it can tip renewal negotiations in the Landlord’s favour – advantage, Landlord!
We meet too many Tenants who sign their leases without understanding some of the onerous clauses they contain. The Landlord writes the lease, and the clauses are generally weighted in favour of the Landlord. Lease documents tend to be lengthy and weighty. To mitigate long-term risk, it is critical to have someone on your side who understands standard lease documents and how landlords interpret them.
We have been very successful negotiating with landlords to delete or change many clauses such as the Restoration Clause in commercial leases, to make it much more Tenant friendly and minimize the financial impact on Tenants.
