Make good: the bill that arrives when you leave

Seven years ago, Nadia signed a lease on a second-floor unit in Calgary and turned it into a yoga studio. She put in a sprung wooden floor, built two change rooms with showers, added a wall of mirrors and replaced the fluorescent lights with dimmable fixtures. It was a lovely room. When she decided to move to a bigger space, the landlord sent a letter listing everything she had to remove before she left. The estimate to do it was more than three months’ rent.

Nadia is a composite, but the letter is real enough. It is how many tenants first learn the meaning of a make-good clause, also called a restoration or reinstatement clause. This piece explains how those clauses work and how to keep one from becoming the most expensive surprise of your lease.

What the clause usually says

Most commercial leases require the tenant, at the end of the term, to return the premises in a stated condition. The wording varies a great deal. Some leases ask only that the space be left clean and in good repair, reasonable wear and tear excepted. Others require the tenant to remove all alterations, improvements and installations and restore the premises to their original condition or to the building’s standard. Many sit in between and give the landlord the right to choose, often by notice near the end of the term, which items must be removed.

That last version is the one that catches people. A tenant may assume a landlord will want to keep a nice kitchen or new washrooms, and sometimes the landlord does. But if the next tenant wants a different layout, the landlord may elect to have it all removed at the outgoing tenant’s cost.

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The best time to negotiate your exit is on the day you sign. The worst time is the month you are trying to leave.

What it costs

Restoration work is construction work, with the same trades and the same surprises. In Nadia’s case, the list included lifting the sprung floor and repairing the subfloor, removing the showers and capping the plumbing, taking down the change room walls, removing the mirrors and patching the wall behind them, and replacing her light fixtures with the building’s standard ones. Network and audio cabling in the ceiling had to come out too, a line many tenants forget.

As an illustration only, a contractor’s quote on a job like this for a 2,500-square-foot unit might come in at $12 to $20 a square foot, or $30,000 to $50,000, depending on the scope and the building. If the lease lets the landlord do the work and bill the tenant instead, there may be a supervision or administration fee on top. Read the clause to see whether that is allowed and at what rate.

Deal with it at signing

Restoration is far easier to manage at the start of a lease than at the end. When you first negotiate, ask for the clause to limit removal to items the landlord identifies when it approves your drawings, rather than leaving the choice open until the end of the term. Ask that standard office or retail improvements such as ordinary partition walls, ceilings and lighting can stay. Some tenants negotiate a dollar cap on restoration, or agree a fixed payment in place of the work.

Record the condition of the space when you take it over. A dated set of photos, a short video walk-through and, ideally, a written condition report signed by both sides will settle many arguments years later about what was there when you arrived. Keep the approved drawings for every change you make during the term, too.

Managing it at the end

If you are approaching the end of a lease, start at least six months out. Read the restoration clause, check whether the landlord must give notice of what it wants removed and by when, and ask for that list in writing early. If the landlord is already talking to a new tenant, there may be room to agree that some improvements stay, which saves you money and helps the landlord re-lease faster.

Get your own quotes. If the lease lets you do the work yourself, it is often cheaper than having the landlord do it and bill you, but it must be finished before the lease ends or you may end up overholding. Leave time for the landlord to inspect, and get written confirmation that the work is accepted before you hand back the keys.

In Nadia’s case, the incoming tenant turned out to be a dance school. They wanted the sprung floor and the change rooms. After a few weeks of back-and-forth, the landlord agreed in writing that those could stay. Her final bill covered the mirrors, the light fixtures and the cabling, a fraction of the original estimate.

A checklist for any lease