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A restoration clause, otherwise known as a make good provision, is the tenant's responsibility to restore the tenant improvements back to the base building shell at the expiry of the lease this typically is a $5 to $10 per square foot cost as an exit cost when the tenant moves to another space.
This is typically a cost that most tenants are either unaware that it exists within their lease or are surprised to find out that the clause survives the expiry of the lease.
Here is the landlord's goal with the make good clause:
The tenant also has very little recourse.
What if the landlord does not actually demolish the space? Since the tenant typically will never come back to the space that they vacated a landlord could charge for the demolition of the space and just keep the money.
Want to see a short video on how to handle this clause? We thought so...
The following is a clause is a sample of what you may consider putting into a letter of intent or offer to lease to be very clear that you shall not have the obligation to restore the premises back to a shell or base building condition.
It is agreed that the Tenant shall not have the obligation to restore the leasehold improvements or any modifications to such leasehold improvements in the Premises to base building or original condition at the termination of the Lease. The Landlord agrees to accept the Premises in the condition and configuration in which they are structured at that time, which shall be a clean and tidy broom-swept condition.
Notwithstanding the foregoing, at any time during the Term or upon expiry of the Term the Tenant shall have the right to remove any or all of its trade fixtures. The Tenant shall be responsible to repair any damage caused by such removal, reasonable wear and tear excepted.
If you have not managed to specifically ask for a no make good in the offer to lease or letter of intent and the lease shows up ready to be signed, you still may be able to remove the restoration obligation (but the landlord is under no obligation to oblige).
The following is a typical lease clause addressing a tenant's restoration provision, with some comments throughout (taken from a recent lease in Florida):
All Leasehold Improvements in or upon the Leased Premises shall immediately upon affixation be and become the Landlord's property without compensation therefor to the Tenant.
Translation: once you build something in the space it is the landlord's - you cannot take it with you at the end of your lease.
The clause above goes on to say:
Except to the extent otherwise expressly agreed by the Landlord in writing no Leasehold Improvements, trade fixtures, furniture or equipment shall be removed by the Tenant from the Leased Premises either during or at the expiration or earlier termination of the Term except that
(1) the Tenant shall at the end of the Term remove its trade fixtures,
(2) the Tenant shall at the end of the Term remove Leasehold Improvements as the Landlord shall require to be removed, and
Hint: this is the killer! Attempt take out (2) entirely.
You may notice it is a capitalized item, which means it is a defined term. Therefore Leasehold Improvements can be found in the definitions section of the lease.
Note that in many cases it will be defined as any work YOU did to the space or any PREVIOUS TENANT. Although you may take space on an "as-is" basis, you may still be obligated to demolish the leaseholds of the previous tenant.
Back to the clause...
The Tenant shall, in the case of every removal either during or at the end of the Term, make good any damage caused to the Leased Premises by the installation and removal. Provided that upon the termination of this Lease, the Tenant, if requested by the Landlord and at the Tenant's sole cost and expense, shall restore the interior of the Leased Premises to its former condition immediately prior to the installation of such alterations or changes, including the restoration of such standard fixtures as may have been installed by the Landlord, and if not so requested, any such changes or alterations shall become the property of the Landlord, or alternatively, the Tenant shall install such comparable fixtures and materials as may then be in use.
Note: this last paragraph should be deleted as well because if you are successful in removing the makegood then this clause does not need to live on.
One final note - just because you agreed to a makegood provision in the first lease, do not accept it surviving in the renewal.
Most landlords will want to preserve all lease clauses moving forward, but you should be able to improve upon some existing clauses and this is a common clause that is removed after the first lease term.
To discover if you have a makegood clause in your lease, either overtly, or hidden, you may want to consider a lease abstract service.
Additional questions you may have about a makegood clause:
Typically a lease will either be silent on this is, or it will provide a broad statement such as the tenant's obligation will "survive the expiry of the lease", which is very ambiguous.
It is unreasonable for the landlord to charge you for the makegood cost several months or years after you vacate - if the lease is ambiguous and you have moved out, we suggest to ask the landlord to make a determination if she wants the space brought back to a base building condition, and if not, then she should release you from your obligation to restore the premises.
Most clauses will state that the tenant is responsible for paying for the demolition, and if the landlord carries out the work on the tenant's behalf, there likely will be a landlord administrative fee added to the demolition cost (which is usually 15%).
Yes, unless you specifically remove the clause during the lease renewal. If you simply exercise your right to renew, all clauses will survive in the lease renewal period.
Absolutely. Although a makegood is in just about every landlord lease template, most landlords will agree to remove the clause, especially if you are not already a tenant and have the leverage of being able to choose another building.
These are leasehold improvements that are not typical for your use of the space. For instance, very small offices, raised computer floors, and anything that will not likely have much re-usability for next tenant.
It is best try to get a full pass on making good on absolutely everything. But if you are going to concede on any items, the most fair would be the wiring and cabling as many tenants re-wire and re-cable from scratch to suit their needs.
If you have a makegood provision, then yes. Just because your landlord approved the leaseholds does not mean you are not obligated to restore them.
You may have to. Many leases are sneaky by defining leasehold improvements as anything that you constructed or any previous tenant. That way the landlord just has a blanket right to have to restore the premises right down to a concrete shell.
Yes, but be sure to have that agreement agreed to in writing with your landlord at the time she approves the construction of those leaseholds.
Most subleases end one day prior to the expiry date of the head lease, so in that case you would not inherit the makegood obligation. If the lease was assigned, you likely have inherited the obligation.
Overlooking a commercial tenant makegood provision is a common, costly mistake many corporate tenants make, even though it is a clause that is often easy to remove. Tenants who seek professional commercial lease advice can identify clauses to be removed that will eliminate hidden costs within their commercial lease.