Encyclopedia
Second-generation space
Space previously built out by another tenant.
For example: Hypothetical: a restaurant leases a former restaurant space with existing kitchen. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you open a café in a space a previous restaurant left behind, with its kitchen hood and grease trap in place. You save a large part of your fit-out cost and open sooner.
What I’d tell a friend
Previous tenant improvements can save real money, but get them inspected before you count on them, and get it in writing who owns them.
Why it matters to you
An existing build-out can save time and money if it fits your business. If it doesn't, removing it can cost more than starting from a shell, and you may inherit problems the last tenant left.
How to use it in your deal
Tenants should check the condition and age of existing improvements, whether they meet current code, and whether they suit your use. Ask whether equipment is included, who owns it, and whether any is subject to a security interest registered with the Personal Property Registry. Confirm permits for the previous use and whether your use needs new ones.
Landlords may offer less tenant improvement allowance for second-generation space, since less work is needed. Ask about restoration obligations; you may have to restore the space at the end, even if you didn't build it. Buyers should consider how reusable existing build-outs are. Get a contractor to look before you sign, because removing old fixtures can cost more than you'd think.
Also ask why the last tenant left; a failed restaurant in a good kitchen tells you something about the location, the rent or the operator, and it's worth knowing which. Get the landlord to confirm in the lease that the existing improvements are accepted as is, and that you won't have to remove anything you didn't install.
Mistakes I see
Assuming equipment works. Not checking ownership. Not clarifying restoration.
In BC and Vancouver
Building and health permits come from the municipality; equipment liens can be searched in the PPR.
Official sources: Personal Property Security Act (BC Laws) · Builders Lien Act (BC Laws)
What it means
Second-generation space has already been built out by an earlier tenant. It may include walls, kitchens, washrooms, ventilation or wiring left behind.
Landlords often offer it as is, sometimes with a smaller allowance than for raw space, because the tenant needs less work.
What to check
Have equipment and systems inspected by a qualified trade, and confirm whether items left behind belong to the landlord or to someone else, such as an equipment lender.
Check the lease for what you must remove or restore at the end of your term. You do not want to pay to take out improvements someone else installed. Ask a BC lawyer to confirm the wording.
Questions to ask before you sign
- What's included?
- Does it meet code?
- Who owns the equipment?
- What must I restore?
Keep reading
Related terms: Tenant improvements (TI), Fixturing period, Restoration clause
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.