Richard Crenian’s advice: Planning ahead can save you alot trouble after you have signed a lease or rental contract.
Remember a TV show, that focused on the opening of a special vault in a Chicago hotel owned by gangster Al Capone? And despite all the build-up and hype, nothing was found in that vault! While TV fans thrive on the suspense, the commercial real estate world does not.
In commercial real estate, we try to avoid surprises, because they can result in unexpected costs. Many experts you speak to will stress that cost certainty allows a business to grow & offer better opportunities to help you make smart investment choices.
This article mentions the vault because, the removal at the end of a lease can sometimes result in a landlord incurring significant costs, especially if there is no stipulation in the lease for the premises to be returned to its original state.
The lack of a restoration clause could be expensive, not only when it comes to bank vaults but also to the removal of large freezers in flower shops or ventilation systems over deep fat fryers in restaurants, etc.
Making the Contract Good For Both Parties
The essence of the commercial real estate industry: contracts between tenants and landlords. Ideally, both parties will be happy with the deal that has been negotiated and, both sides will be able to have a profitable experience. Unfortunately, too many times it happens that one side lets itself down, when they rush to sign along the dotted line.
In residential contracts, which are more regulated state that a departing tenant must leave the property in the same condition as it was at the beginning of the contract. But, stipulations like that are not built into commercial real estate contracts (unless a restoration clause is there).In recent years, this has become a necessary addition because of the growing and differing needs of tenants.
One business may want private offices but the next tenant may want an open floor plan, or need reinforced floors or a cooling system for a computer room. With the changing face of businesses these demands can sometimes appear limitless. With each new tenant, there could be a new request.
Every details matter
When it comes to the negotiation of restoration clauses between the landlord and the tenant, there are many factors that can tip the scale one way or the other.
If the tenant is seen as providing cache to the rest of the plaza, the landlord is not going to be in a strong bargaining position to negotiate additional clauses, as securing this tenant could be important in recruiting other tenants and determining the rental costs for the units.
So, in every negotiation it is important to have people with experience and an understanding of both the current and the long-term economic picture to ensure a fair deal is reached for both parties.
Everyone wins in the end!
It is important to take a flexible approach to the restoration clause. If a tenant has made some significant upgrades, it would be foolish not to consider keeping them as they could be very strong selling points for the next tenant.
What we are likely to see going forward is a smarter use of the restoration clause to ensure commercial properties provide as many options and benefits for both the landlords and tenants.
After all, no one wants a departing surprise!
Richard Crenian is the founder and President of ReDev Properties. Since its founding in 2001, Richard and ReDev Properties have grown the asset management company using a long-term approach to manage over 30 commercial properties, primarily located in Western Canada. To learn more about Richard please visit www.richardcrenian.ca