What do the famous MET Gala and the lease of non-residential premises in a shopping centre have in common?
Out fit vs. fit – out
FIT OUT is a term adopted from English terminology and, in ordinary commercial practice, is used in connection with the lease of premises in shopping centres to refer to the construction and fitting-out of operational premises into a usable condition for the tenant (and it must be said that, as a rule, also by the tenant).
Fit-out means the construction completion of the subject matter of the (future) lease – premises which the tenant wishes to subsequently use properly and peacefully under the lease agreement for the purposes of their business activities carried out there (whether it concerns a bakery, a shoe retailer, or an interior designer selling furniture and accessories). Fit-out premises should be completed to a condition in which they meet the requirements for proper, functional and usable operation (approved for use), in accordance with the purpose of the lease.
We refer to the terms tenant and lease, but ideally the terms future lease and future tenant should be used.
Why a future lease? Because, logically, the first fit-out works are carried out before the definitive lease agreement is concluded, as that agreement only serves to regulate the relationship during the lease term (i.e. at a time when the operation is already supposed to be usable in accordance with the purpose of the lease).
▪️Imagine this: you are interested in leasing premises in a shopping centre, you receive a draft of the contractual documentation and there it is: FIT-OUT PROVISIONS... What should I bear in mind in THIS regard? The contractor carrying out the modifications will ask you the same question.
In connection with carrying out fit-out modifications, please bear in mind, in particular (but not exclusively), the following
9 points concerning fit-out modifications:
1. the method of handing over and taking over the premises for the purpose of carrying out the fit-out: formal handover and takeover of the premises, resolving the electricity supply
2. the deadline for completing the fit-out modifications
3. a contractual obligation to respect the specified period during which fit-out modifications may be carried out (there is a major difference between an already operating centre, where the future tenant may (or may not) disturb the other tenants with its construction activities, and a centre that is yet to open), and the related obligation to access the building (centre) for the purpose of carrying out the fit-out
4. the operation must be suitable for carrying out your business activities – imagine that you are going to operate a restaurant or bakery, but the premises have only one entrance door; that would be a problem for you, wouldn’t it? And what about obtaining permits... we address the operation not only spatially but also from a legal perspective
5. does the landlord require an implementation design for your operation, or may you carry out the works without one?
6. allocation of a location for placing construction waste containers
7. taking out insurance and providing security
8. regulation of depreciation rules and ownership rights to the fit-out modifications, and their removal upon termination of the lease – some elements may legally become the landlord’s property during implementation, while the tenant is obliged to remove some elements upon termination of the lease
9. deadlines, penalties, and use of the security
An agreement to conclude a future lease agreement contains much more – last but not least, it generally includes a draft of the definitive lease agreement.
Do you need advice?
We have more than 12 years of experience preparing draft agreements for commercial premises in shopping centres.
skypalova@skylex.sk
