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Tenant Leasing Illustrated – Nov 2015 – Alterations: Like Déjà Vu All Over Again

Alterations: Like Déjà Vu All Over Again

Sadly, on September 22, 2015, Yogi Berra passed away.

His baseball career was quite amazing. He played in 14 World Series, winning 10 times, was voted most valuable player three times, was elected to the Hall of Fame and, in perhaps his most miraculous feat, as manager won the pennant with the Mets.

You do not have to be a Yankee fan or even a sports fan to feel the loss. He was a cultural icon.

After all, other than commercial leasing lawyers, who has a cartoon character named after them?

Yogi is also known for his mangled but philosophically insightful manner of expressing himself; a style that Leasing Illustrated keeps alive. At least the mangled part.

His wit has become the stuff of perhaps exaggerated legend; as Yogi himself noted “I never said most of the things I said.”

Yogi is perhaps best known for saying “it ain’t over till it’s over”. That is certainly true about a baseball game not governed by a clock, but it can be true as well about a commercial lease.

Over time, a tenant’s commercial space can become a little long in the tooth and need a facelift.

Although renovations will likely increase the value of a landlord’s asset (particularly with respect to a retail space), Pavlovian adherence to “standard” provisions can restrict a tenant’s ability to renovate.

For most tenants, the initial alterations at lease commencement will represent the bulk of their tenant improvements and these alterations receive the most attention.

However, over the lease term a tenant may wish to redecorate, create greater space efficiencies or take advantage of new technologies.

This is true of both office and retail tenants, but retail tenants in particular need the flexibility to upgrade their space as part of their marketing strategy.

Allow yourself the flexibility to make renovations during your lease term by addressing the following nine concerns:

  • “You’ve got to be very careful if you don’t know where you are going because you might not get there.” Require that your landlord not unreasonably withhold, delay or condition its consent to your future alterations. You can expect an exception for specified “major” alterations that are not limited to the interior of the Premises, affect the exterior of the Building, (adversely) affect structural elements or building systems, involve core drilling (other than for conduit) or violate any laws or insurance requirements.
  • “When you come to a fork in the road, take it.” Certain alterations should not require any landlord’s approval.

○ You should have the ability to make alterations of a decorative nature (e.g., painting, carpeting, wall coverings, decorative lighting) not requiring a building or alteration permit from any governmental authority.

○ You should be able to make non-material alterations that are not decorative, but are limited to the interior of the Premises, do not adversely affect structural elements or building systems, do not require a building or alteration permit from any governmental authority and cost less than an agreed upon amount.

  • “If you can’t imitate him, don’t copy him.” You will need flexibility if you are a tenant with specific and recurring interior design and layout needs, such as a retail tenant that requires adherence to company-wide design features or an office tenant looking to obtain LEED (“green”) status.
  • “Nobody goes there anymore, it’s too crowded.” Your landlord should not unreasonably withhold or delay consent to your architects, engineers, contractors and vendors. Your landlord has an interest in the parties working in its building, but should not restrict you to an exclusive club.

○ Many landlords require that tenants only use contractors on a building approved list. You should have your landlord include as many contractors as possible on such a list. But even if the list is broad and acceptable on lease execution, things can change and you should have the right to propose additional names from time to time and have your landlord agree to act reasonably in granting its approval and in removing names. You should also require that your landlord keep a minimum number of options on that list for each trade during the term.

○ Some landlords will reasonably insist that you use particular contractors for specified work, such as the building’s expediter or the building’s contractor for certain life safety systems, although in all events these contractors should work at commercially reasonable rates.

  • “It gets late early out here.” While perhaps not as crucial as with an initial build out, you will still have a schedule to keep and your landlord should agree to approve or disapprove your plans and specifications (including re-submittals) within an agreed upon period of time, failing which such approval should be deemed granted if your landlord does not act after a second notice.
  • “The future ain’t what it used to be.” Your lease may give your landlord the discretion to require that you obtain a lien and completion bond or some alternate form of security to ensure lien-free completion of your alterations. Often this requirement is dropped with respect to initial alterations, but your landlord may be uncomfortable with your future financial standing. Try to eliminate this requirement, at least as to the “original tenant” or any permitted successor, and at a minimum limit the requirement to larger alterations.
  • “I can’t think and hit at the same time.” Every landlord will require that your contractors carry certain minimum amounts of insurance. It is better to have these clearly spelled out in the lease so that you do not have to think about it and be held up at the end going back and forth with your landlord.
  • “A nickel ain’t worth a dime anymore.” Resist unreasonable landlord “supervision” or similar fees on top of reimbursement of actual costs. Your landlord is entitled to be reimbursed for its reasonable third-party costs, but renovations should not be a profit center for your landlord. If your landlord is truly providing supervisory functions then a reasonable fee may be acceptable, but your landlord should not get paid for doing little or nothing. That’s what lawyers are for.
  • “Always go to other people’s funerals, otherwise they won’t come to yours.” Require that your landlord reasonably cooperate with you with respect to obtaining necessary permits and approvals.

As Yogi said, perhaps with landlords in mind, “if the people don’t want to come out to the ballpark, nobody’s going to stop them.” So require your landlord to play ball on your future alterations by including the nine suggestions above in your lease.