Restoration Work — a Frequent Source of Conflict in Commercial Lease Agreements

There is an often overlooked, yet critical moment in every good-faith business relationship between commercial landlords and tenants. It’s not the day the price per square footage is agreed upon, nor the moment the ink burns bright on the lease agreement — or even if/when the lease is renewed. No; a great indication of a smooth landlord-tenant relationship is apparent by its orderly conclusion. When entering a lease agreement, it’s important to remember that the end is inevitable. 

I’m talking specifically about “restoration work,” a provision within every lease agreement that defines the responsibility of landlords and tenants after a lease expires. Restoration work refers to any inevitable preparation required to successfully transition the interior space from past tenant to new tenant. 

As a downtown Seattle law firm with comprehensive commercial real estate expertise, Holmquist + Gardiner frequently resolves restoration work disputes. Our talented attorneys advise both tenant and landlord clients on methods and legal strategies to help allocate future risk.

Since restoration clause disputes occur so often, I wanted to highlight the concept and explain why it’s a mandatory technical discussion that both the landlord and tenant should analyze with equal interest. 

Unfortunately, most lease provisions don’t spell out restoration clause terms specifically. Or, if they do, one party doesn’t properly understand the extent of their responsibility. In standard form agreements, baseline commercial lease language regarding restoration work can be rather ill-defined. 

An example of broad restoration language for the sake of discussion: Tenant will leave the premises in reasonable and broom-clean condition, accepting normal and reasonable wear and tear.  

Broom-clean condition” is common language, but relying on baseline direction in an agreement leaves too much mitigating risk for both parties. The above language doesn’t take an aggressive enough approach to define the post work condition involving any tenant “improvements.” Different improvements have different cost points. Upon a tenant’s exit, questions may remain: Does the mutual understanding include removal of tenant’s interior improvements, such as fixtures, high-end shelving, cabling, structural work, and racking systems? Roof spaces also present a point of contention. Commercial spaces, in particular, go through dramatic changes as businesses invest in the proper design aesthetic and functionality to achieve goals. Large lease or small leases — both can present conflicts and leave one party carrying the burden of unexpected transition costs. 

Market shifts are unpredictable. Even in boom times, it’s impossible to pinpoint exact market influences and how they will affect the expectation of what “improvements” should be removed, and who is liable for those expenses. Back during the 2008/2009 financial crisis, restoration clauses became especially important under the unfortunate condition of default. The motivation to protect yourself should be no different in our current economic frenzy. A responsible signee should leave nothing on the table! It’s mutually beneficial for all business interests. So have the technical discussion.

Holmquist + Gardiner came of age during the 2008/2009 financial crisis. We’ve grown and evolved with the City of Seattle and its commercial marketplace. We understand the importance of past precedents, current market trends and the considerable cost-points that restoration work liabilities can dictate. We guide expectations based on the style of property and the individual tenant or style of business operation. There are cases where the market dictates what tenants and landlords should be able to accept as proper post-lease condition. 

If you’re curious for more information on frequent language involved in commercial lease agreements, check out my past blog, Commercial Leasing Terms in Seattle, What Tenants Need to Know. The article provides a breakdown of terms that will help tenants enter a prospective lease agreement with their interests protected. 

A commercial lease negotiation is most effective when both the tenant and landlord enter the agreement with a fully-vested interest in the conclusion of the lease relationship. Restoration work provisions may seem like a long way down the road, but too often, a good relationship turns poor when a post-work conditions cause a dent to one, or both, party’s bottom line. These scenarios will continue to impact commercial properties in Seattle, but at least you now have insight to information that too many parties overlook — no matter which side of the lease agreement you aim to sign. 

The attorneys at Holmquist + Gardiner are experts in commercial real-estate law. If you’re interested in discussing any aspect of your business interests, feel free to contact us today.