When a business first rents a commercial space, typically a lot of fixtures and other improvements will need to be put in. For instance, if a space in a strip mall was an optometrist’s office, and then a donut shop moves in, they’ll need to install an oven, prep tables, a counter, display cases, etc. They might even need to reroute water, gas or electrical service.
I’ve always wondered how this is handled legally and financially. I imagine the lessor pays for the work with the approval of the lessee, but does that mean if the donut shop moves across town, they get to rip out and take the display cases and refrigerators and stuff, even if it renders the space useless and torn up? What if the lessor needs to install industrial equipment or something, and it requires opening a hole in the ceiling or roof? Does the lessor have to return the space to its former condition before terminating the lease? Or is all this up for negotiation?
It’s entirely negotiated.
In theory, the owner rents only the empty space, so all fixtures, etc. are paid for by the renter. And he could take them with him when he leaves.
In actuality, it depends on the market. Often an owner will pay for part of this, usually in exchange for a longer term lease agreement. Sometimes pro-rated: ‘Owner pays for up to half of these costs, 10% of the cost paid each year that the tenant stays.’
It’s quite common for the owner to pay for improvements in the electrical or water service in the space; things that will stay there after the tenant moves out.
Anything else is up for negotiation, and will depend on how badly the owner wants to rent the space and how badly the tenant wants this location.
When I was doing electrical work for a retail chain. It is all negotiated ahead of time Most spaces came as is. You got an empty space or it had the fixtures/walls from the previous occupant. Demotion was at the cost of the new occupant. The tenant was responsible putting in any walls, lighting, ceilings, flooring, outlets, etc that were inside of the space. When they left we were free to take anything that had been installed
Electrically the only thing provided was the service, the main panel and the fire alarm system. We did all the lighting and outlets emergency lights/exit signs. In a previously occupied spaces we were free to reuse anything already there. Standard was to save the feeds(wires running from the panel to anywhere else). Everything else was ripped out and scrapped, branches, fixtures, outlets, switches.
Things like rooftop units and such are typically part of the building and included with the lease. I’m not sure how restaurants normally work concerning vent hoods and such. Anytime we had to drill a hole through an outside wall of the roof there was a written agreement involved.
In a class A office building it is done several ways. The old way pre 2002 was there is the space do you TI. When the tenant left he could remove anything he put in.
Now there is usually a TI credit against the lease. The tenant can use his contractors or the building managers contractors. When the space is completed the tenant moves in. When he moves out it has to be in as good of shape as when he moved in. If he installed a bunch of equipment and removes it on moving out he may have to repair the wall.
But the stuffin the space is the tenants. If the tenant has a server room in the suite and puts in a water source heat pump, when he leaves he can take it with him. He can not tear the cieling apart to get it but it is his.
When I worked in commercial real estate, specifically dealing with places like strip malls, the rule was that tenants could bring in and install anything that did not exceed the weight rating of the floor or require permanent structural changes. (e.g. Walls could not be moved, but the type of windows or doors could be changed, with approval.) Plumbing, duct work, additions to the ventilation system, etc. could all be adapted and changed within the space as the tenant needed, but it was done at their expense.
Upon moving out, the tenant was required to return the location into a “blank box.” As it was given to them was how it had to be returned, unless prior arrangements had been made. In about a year and a half there, the only exceptions I recall were related to improvements that enhanced the saleability of the space, one was a space that had been leased to an optometrist/eyeglass place that had installed a customer restroom, and a fabric store that installed a small kitchen in a back room, with wall mounted counters and a kitchen sink.