Restoration – we’re not talking ‘that old house’ restoration. Rather, we are talking about Restoration as a legal term used in leases. It is an often overlooked requirement buried deep in commercial and industrial leases. Restoration goes along with the concept of “ordinary wear and tear.” It can result in serious financial consequences to those who do not understand or choose to ignore the implications of restoration. If it is going to happen, you will know it when the lease terminates and the space is turned back over to the landlord.
Essentially, the concept of Restoration means that upon termination of the lease (or sublease), the tenant is required to “restore” the Premises to its original condition except for ordinary wear and tear. If the tenant has made modifications to the space during its tenancy, it may be required to bring the space back to the original condition and configuration. If the nature of the modifications includes wall construction, electrical, plumbing, and HVAC changes, it will likely be quite expensive to revert back to the initial plan.
From a practical standpoint, Landlord’s choose to use the Restoration obligation as bargaining leverage at the termination of a lease. The Landlord may actually view the modification(s) as beneficial improvement to the property. Even then, they may threaten the Tenant with the obligation to restore to original condition as a way to extract a financial settlement. Sometimes it means sacrificing rights to the Security Deposit. Either way, to the unsuspecting Tenant, it can be a rude awakening that comes with a hefty cost.
There are ways to avoid the expensive consequences of Restoration. One is to craft relatively simple lease language during the drafting of the lease. The other is to always request the Landlord’s agreement NOT to require Restoration whenever the Tenant is about to perform Alterations to the Premises. Either of these actions takes minimal effort to accomplish but can save thousands or even hundreds of thousands of dollars in unnecessary cost.