Commercial Tenant Improvements: 10 Questions for Your Lease
Finding the perfect ‘shell’ for your restaurant, boutique, or clinic in the Bay Area is exciting, but commercial tenant improvements can either be a launchpad or a financial anchor for your business. Most owners focus on monthly rent, but the hidden technical requirements of commercial tenant improvements often cost more than the rent itself. At YCD Studio, we deal with these complexities daily to protect your budget.
1. What is the specific Tenant Improvement Allowance (TIA)?
Don’t settle for a vague promise; ask for a specific dollar amount per square foot.
The Industry Miss: Verify if the TIA is a reimbursement (you pay upfront) or if the landlord pays contractors directly. This significantly impacts your initial cash flow.
2. Can the TIA be used for “Soft Costs”?
Many landlords try to restrict the allowance strictly to “hard costs” like walls and floors.
The Industry Miss: Ensure your TIA covers architectural fees, permit fees, and engineering. These “soft costs” can account for 20–25% of your total budget before construction even starts.
California law (CBC Chapter 11B) is strict: if you remodel a space, you must ensure the “Path of Travel” from the sidewalk to your front door is accessible.
The “20% Rule” & The 2025 Valuation Threshold
If your project cost is below the 2025 Valuation Threshold of $203,611.00, your mandatory accessibility spend is capped at 20% of your construction budget. However, you must spend that 20% in this strict Priority of Upgrades:
An Accessible Entrance: The primary front door.
An Accessible Route: The path from the entrance to the remodeled area.
At Least One Accessible Restroom: Serving the altered area.
Public Telephones & Drinking Fountains: Serving the area.
Parking, Signs, and Alarms: Remaining funds go here.
The “Hardship” Nuance: If your project exceeds $203,611.00, full compliance is required. You may only skip upgrades if you prove an “Unreasonable Hardship”, which is a formal finding that full compliance is technically infeasible or disproportionately expensive.
4. What is the current “Occupancy Group” of the space?
Moving from retail (Group M) to a fitness studio or cafe (Group A) is a “Change of Use”.
The Industry Miss: This can trigger mandatory seismic retrofitting or fire sprinklers. In Oakland, you must submit a Zoning Worksheet and receive Design Review approval before you can even apply for a building permit for a change of use.
5. Protecting Your Commercial Tenant Improvements with CASp
To protect yourself from “drive-by” ADA lawsuits, we recommend a CASp (Certified Access Specialist) Inspection before signing your lease.
Qualified Defendant Status: Only a CASp inspection (not just an architect’s survey) grants you this legal status, which can reduce statutory damages from $4,000 to **$1,000** and provide a 90-day stay of legal proceedings.
120-Day Grace Period: Businesses with 50 or fewer employees can receive a 120-day grace period to fix violations identified in the CASp report without liability for statutory damages.
6. Where is the Grease Interceptor located? (For Food & Beverage in commercial tenant improvements)
Every restaurant must comply with the California Plumbing Code regarding Fats, Oils, and Grease (FOG).
The “25% Rule”: Local agencies require you to pump your interceptor once the combined grease and solids exceed 25% of its liquid depth.
The Industry Miss: Digging into an old concrete slab to install a standard 1,500-gallon gravity interceptor can cost $20,000+. Ask the landlord for a “structural hardship” exemption to use a smaller, under-sink hydromechanical unit if space is limited—but be warned: these require much more frequent cleaning.
7. What is the HVAC “Scope of Responsibility”?
In the Bay Area, newer 2025 regulations (Title 24, Part 6) have made energy efficiency standards stricter than ever.
The Maintenance Trap: In a standard Triple Net (NNN) Lease, the tenant is often responsible for all HVAC maintenance and repairs.
The Industry Miss: If a 15-year-old unit fails, you may be on the hook for a full replacement. Negotiate for the landlord to handle Capital Replacements while you handle only routine maintenance, or ask for a warranty on the unit for your first 12 months.
8. Does the space have a valid “Certificate of Occupancy” (C of O)?
A C of O is a legal document from SF DBI or Oakland Planning proving a building is safe for its specific use.
The Industry Miss: If a space has been vacant or used for an unapproved purpose, the city may refuse your business license until the building is brought up to 2025 safety codes. This can stop your project even if your interior design is perfect.
9. Will you offer a “Rent Abatement” period?
Permitting for Bay Area tenant improvements typically takes 3 to 6 months.
The New 2025 Law: Under the Commercial Tenant Protection Act (SB 1103), “Qualified Commercial Tenants” (small restaurants and nonprofits) now have expanded notice rights for rent increases.
The Industry Miss: Negotiate for “Free Rent” during your build-out phase. Don’t pay for a space that is still a construction zone.
10. Your Commercial Tenant Improvements Safety Net: Permit Contingency
This is your ultimate legal safety net.
The Strategy: Use a Permit Contingency Clause that makes the lease effective only after you obtain your building and use permits.
The Industry Miss: If the city denies your “Change of Use” or requires a massive seismic upgrade, this clause allows you to terminate the lease without penalty. Without it, you could be stuck paying rent on a space you aren’t legally allowed to use.
Don’t Navigate the Lease Alone
The biggest mistake tenants make is signing a lease before having an architect walk the space. At YCD Studio, we provide pre-lease feasibility walks for our clients to spot these “triggers” before they become legal obligations.
Dealing with these complexities is what we do every day. Whether you’re looking at a shell in San Francisco or a historic building in Oakland, we’ll help you ask the right questions and design a space that works.
The information provided on this blog does not, and is not intended to, constitute legal advice. All content and materials available on this site are for general informational purposes only and may not reflect the most current legal developments.
