Article

How to deal with renovations, construction

Before completing any renovations or repairs to the property yourself, it’s vital for restaurateurs to understand that landlords often reserve the right to pre-approve all design and construction to be done by the tenant.

March 7, 2016

By: Jeff Grandfield and Dale Willerton — The Lease Coach

As an existing restaurant tenant, you might want or need cosmetic upgrades to your commercial property. Even if you are looking at new flooring or a fresh coat of paint in your restaurant, one of the best times to address these plans with your landlord is prior to your lease renewal due date. Your landlord may be willing to cover the costs of these repairs or upgrades to your restaurant as a means to motivate you to renew your lease and remain in his property as a rent-paying tenant, but there is more to consider and remember. Before completing any renovations or repairs to the property yourself, it’s vital for restaurateurs to understand that landlords often reserve the right to pre-approve all design and construction to be done by the tenant for a couple of reasons:

• It’s often the landlord’s tenant allowance money being spent on those leasehold improvements. The landlord wants to ensure if at all possible that the improvements being made to the premises can live on and be used by the next tenant should you not stay for more than one lease term or your restaurant business fails.
• It’s the landlord’s property and the landlord rightfully deserves to know whether your construction plans include penetrating a roof membrane or other structural changes. If your design plans reveal that you’ll be using a disproportionate amount of utilities and the utilities are not separately metered (e.g. further water usage for a new dishwashing system), the landlord may also want some input on that (which is completely understandable).

Furthermore, in some cases, the landlord may include a review fee for looking at and approving the tenant’s plans. This review fee may not have appeared in the offer to lease but may instead be part of your formal lease documents. As with many other terms and conditions in this agreement, this fee is completely negotiable as part of your lease renewal. With one client, we remember that the landlord was trying to charge the tenant $1,500 to review their renovation plans.

We strongly advise restaurant tenants clarify the landlord’s work to be done. The landlord’s work, as listed — lease renewal documents should state very specifically any improvements that the landlord will do the property – typically at the landlord’s expense. One example can be the installation of a Heating, Ventilation, and Air-Conditioning (HVAC) unit on the property roof to provide warm and cool air inside. Restaurateurs may also choose to have the landlord replace or upgrade their store flooring. In this case, the tenant should choose the preferred color and grade of flooring otherwise the landlord may simply install the cheapest and lowest-quality flooring available as a cost-cutting measure.

No matter what the upgrade or renovation project desired or planned, it is critical for the tenant to include as many details as possible to avoid future disagreements and unforeseen costs. Do not make assumptions on these details.

Any work that the landlord isn’t doing will fall into tenant’s work. While you will still require the landlord’s approval to complete these projects, this work is at your expense. With more extensive renovations, the landlord’s and tenant’s work is, typically, listed in a separate exhibit attached to the lease renewal documents to avoid misunderstandings.