Final Assessment: Removal and Restoration Obligations and Brokers Making a Difference

By bringing tenants to a landlord’s building, effectively, brokers help a landlord pay its and its employees’ salaries and other expenses.

Given that a tenant’s broker has (or should have) access to listings of essentially all spaces in the sub-market that fit a tenant’s needs, the use of a broker will save a prospective tenant time, money and opportunity costs in searching for a suitable space.

Generally speaking, if a tenant doesn’t have a broker in a retail deal, landlords will pay less than a full broker commission on the lease.

Brokers can add value for a tenant by (i) knowing which landlords have a reputation for being “tenant friendly,” (ii) helping tenants secure favorable lease concessions during the letter of intent negotiations, and (iii) acting as a trusted consiglieri to the tenant’s attorney during lease negotiations based on that broker’s knowledge as to what the landlord has granted on prior deals.

When representing a tenant, rarely will a broker make inquiries about the financial status, character and reputation of the landlord.

Brokers aid landlords and tenants when there is competition for a tenant or a space by helping the side they advocate for to convince the other party that the tenant or space they represent is right for the other party.

A business’s ability to make an informed decision about their real estate needs is only enhanced by the knowledge a good commercial tenant representative brings to them, not only about the marketplace, but also about how to navigate the leasing process and choose among the many attorneys, architects, contractors, designers, furniture providers and other trades a business will need to rely on when looking for new space.

In the event of a lease renewal, a good tenant’s broker has the ability to work with a landlord while advocating for its client by convincing the landlord (as well as its client, the tenant) that it should never give up on a good thing (even if the space needs some cosmetic improvements and/or space efficiency reconfiguration).

Brokers can help a tenant trying to restructure their lease by conveying to the landlord that unless it is willing to grant the tenant some sort of temporary rental relief to help the tenant weather the economic distress it is currently confronted with, the landlord very well may soon be confronted with vacancy turnover, loss of revenue and a myriad of other turnover costs (i.e., a full brokerage commission for the next incoming tenant as well as tenant improvement build-out allowances, free rent concessions and professional fees).

Given that landlords and their listing agents generally have far more experience in negotiating letters of intent and leases than a tenant does, it is in the tenant’s best interest to hire a broker to look out for their best interest.

A broker can save a tenant’s or landlord’s company money in terms of valuable time and salaries not spent on staff whose primary responsibility would otherwise need to be managing the leasing process.

Generally speaking, a landlord’s or tenant’s company is likely to save more money in terms of both time and salaries spent managing the entire leasing process on its own versus hiring a broker.

It is generally in the tenant’s best interest to not hire a broker, and negotiate with the landlord on its own.

Given that a broker is only paid if the deal is consummated, a broker has an incentive to reconcile the parties’ differences during negotiations, and accordingly should have a “we can work it out” mindset to help ensure the transaction closes successfully.

Generally speaking, most leases provide that all fixtures, partitions and like installations installed in a tenant’s space by the tenant, or the landlord on behalf of the tenant, shall thereafter become the landlord’s property and remain on the premises after the tenant vacates, unless landlord notifies the tenant otherwise.

Many leases provide that the landlord may notify tenant that all fixtures, partitions, and/or installations installed by tenant or by landlord on tenant’s behalf, must be removed by tenant at its sole expense prior to the lease expiration date.

In the event that the tenant does not comply with landlord’s notice to remove fixtures, installations, partitions and such that tenant is required to remove from the premises at lease expiration, the landlord will generally remove the items at landlord’s sole cost and expense.

Landlords generally do not require the tenant to remove specialty alterations at the end of a lease.

Tenant advocates should attempt to delete language in the lease, which states that the landlord may, in its sole discretion, require the tenant to remove any installation made by tenant or by landlord on tenant’s behalf at lease expiration.

The following language is pro-landlord and should not be agreed to by a tenant advocate in the lease: “In no event shall tenant be required to restore the premises to the condition prior to the construction of the leasehold improvements. Additionally, the tenant shall not be liable for minor damage to the carpet, ceiling, and walls of the building and/or premises caused by the tenant’s removal of any fixtures or materials it may be required or has elected to remove from the premises.”

Tenants usually don’t have the negotiating power, and therefore should not attempt, to eliminate language expressing the tenant’s liability for “reasonable wear, tear and casualty” in the removal of fixtures, materials and equipment in the space.

A tenant advocate should negotiate for language in the lease along the lines of: “Notwithstanding anything to the contrary contained in the lease, as to any alteration allowed to be made by the tenant, the tenant shall not be required to remove such alterations at or prior to the expiration of the term of the lease.”

When a tenant is at a stalemate with a landlord in relation to tenant’s restoration and removal obligations, a compromise that a tenant advocate can suggest is: “When tenant seeks landlord’s approval to perform an alteration to its space, it shall not be required to remove the alteration provided landlord does not request it to be removed when landlord grants its approval to the alteration being requested.”

A built-in vault, a sound room for recording, a raised floor, an internal staircase, a decorative floor with a tenant’s embossed logo, mirrored walls or ceilings, and internal staircases are common examples of items considered to be specialty alterations.

In most leases, a tenant’s wiring and cabling must be removed at lease expiration.

Due to the tenant’s responsibility to remove its wiring and cabling in most instances, upon installation, a tenant should tag the wiring and cables as belonging to them.

A tenant’s restoration and removal obligations are separate from many of its other obligations under the lease.

A landlord’s good guy guaranty should require that in order for the good guy guaranty to be terminated, the tenant and the guarantor must surrender the premises “broom clean and vacant.”