Reading a Tenancy Agreement Before You Renovate

Tenants read a commercial tenancy agreement for the rent, the term and the renewal option. The clauses about fit-out and reinstatement get less attention, even though they set the rules for everything the designer will do.

This article walks through the clauses we look for before starting a design, explains how each affects the fit-out and answers common questions. It is written from a designer's and builder's point of view. For advice on the lease itself, speak to a lawyer.

Permitted use

The lease states what the premises can be used for, and it may be narrower than the unit's approved use under URA. If your business does more than ordinary office work, such as running a showroom, a training room open to the public or food preparation, check that the lease allows it before designing space for it.

Landlord's consent for works

Most commercial leases require the landlord's written approval before any alterations. This usually works through the building's fit-out manual: you submit drawings, building management comments, and you revise until they approve. Some leases also require approval for changes during the term.

Look for works the landlord can refuse outright, such as changes to the facade, structural works or openings through the floor slab. Those limit the design from the start.

Nominated contractors

Many leases, or the fit-out manuals they refer to, require some works to be done by the building's nominated contractors. Fire protection and air-conditioning are the most common. Their costs sit outside the main fit-out contract, so identify them early and ask for quotations.

Reinstatement

This clause has the biggest effect on the fit-out budget. It sets the condition the unit must be returned in when the lease ends. The common versions are:

• Return to bare shell condition, removing everything the tenant installed.
• Return to the condition at handover, which may include the previous tenant's fit-out or the landlord's base provisions.
• Reinstatement at the landlord's option, where the landlord decides near the end of the lease what must be removed.

Under a bare shell clause, every partition, ceiling, raised floor and sprinkler change you install has to be removed at your cost when you leave. You can still build them. The design should account for the removal cost, and use systems that are easier to take out, such as demountable partitions or furniture-based solutions, where they suit the design.

If you are taking over a unit with an existing fit-out, record its condition carefully at handover with photos and a written schedule. That record is your reference point when you leave.

Rent-free fit-out period

Landlords often grant a rent-free period to cover the fit-out. It should be based on a realistic programme that includes design, approvals and construction. A test fit and a rough programme before signing give you a basis for negotiating it.

Insurance, deposits and liability

The lease sets out the insurance the tenant must carry, and the fit-out manual adds requirements for the contractor, usually contractor's all risk and public liability. Building management also holds a fit-out deposit against damage to common areas. Check that your contractor's insurance meets the stated requirements before work starts.

Common questions

Can I negotiate the reinstatement clause?

Often, especially before signing. Tenants sometimes agree to leave certain improvements behind, or limit reinstatement to specific items. This is a legal and commercial negotiation, so involve your lawyer and your agent.

The previous tenant left their fit-out. Can I reuse it?

Often, and it can save a lot. Check who owns the fit-out, who must reinstate it at the end of your lease and whether it meets current requirements. Ask for the as-built drawings and any fire safety certificates.

Do I need landlord approval to move furniture or repaint?

Usually not for loose furniture. Painting and minor works may still need notification or approval under the fit-out manual, so check it.

How much does reinstatement cost?

It depends on what was built and what the lease requires. The best time to estimate it is during design, when you know exactly what you're installing.

Who should read the lease, my lawyer or my designer?

Both, for different reasons. Your lawyer advises on the legal risk. Your designer reads it to understand what can be built and what it will cost to remove.

In summary

• Check that the permitted use covers everything your business will do in the space.
• Understand the landlord's approval process and any works it can refuse outright.
• Find out which works need nominated contractors, and budget for them.
• Read the reinstatement clause closely and design with removal cost in mind.
• Record the handover condition, and base the rent-free period on a realistic programme.

We ask for the tenancy agreement and fit-out manual at the start of every project. Between them, they answer questions that would otherwise come up halfway through construction.