The Restoration Clause is a seemingly harmless, fluffy little kitty that sleeps tucked away within an office lease… until you reach out to pet it and it jumps on your neck and claws your eyes out.
It is a legal obligation for a tenant to restore, at the landlord’s request, the premises back to the condition it was in before you moved in, and could be a very costly going away present to your landlord should they exercise their right.
Normally, a tenant can negotiate the teeth (or claws) out of this provision or have it deleted in its entirety, or many times the landlord won’t require the tenant to restore the space because the subsequent tenant will benefit from the leftover improvements.
So why are landlords now pushing harder for restoration in lease negotiations, and more frequently exercising this clause as leases expire? Because there has been a 180° shift in how offices are being built out, and tenants are increasingly demanding “open plan” layouts rather than private office intensive build-outs. Therefore, if the exiting tenant has landlord-centric restoration language in their lease and the new tenant wants an open office, you can be sure the landlord is going to stick that tenant with the cost of demolition. That also means that if the incoming tenant desires an open plan and wants the landlord to tear down 30 perimeter private offices, the landlord is going to try its best to reserve their right to obligate that tenant to restore them at the end of their term if the new tenant doesn’t wants them back.
So what can a tenant do to protect themselves from this potential costly exposure? First, fight hard in the initial lease negotiations to completely strike the restoration clause. If the landlord won’t budge, then fall back on agreeing to restoration, but with the condition that the landlord must decide whether or not they’ll invoke their right BEFORE you conduct the work. That way there, you’ll at least know before you spend the money whether or not you’ll be required to spend extra money (and effort) at the end of the term to restore your premises back to their original condition. If the landlord won’t agree to those terms, then you’ll at least take out the guesswork and be in a better position to decide if this is still the right space for you and if the potential added expense is worth it.
If this little gem is already in your lease and you missed it because you weren’t represented by a real estate advisor, now’s a great time to call one up and have them conduct a lease review for you. They’ll be able to provide you with their professional opinion of its implications, and may be able to provide a solution that could dampen or eliminate the exposure.