What is tenant fit-out?

When renting commercial spaces, many come across the terms “core and shell” and “tenant fit-out”. But what do they mean exactly? A clear understanding is crucial to avoid costs, clarify responsibilities, and prevent legal pitfalls. This guide explains what a tenant fit-out is in Switzerland, how it differs from the core and shell, and what tenants and landlords need to look out for.

What is a tenant fit-out? A definition

The tenant fit-out includes all structural measures a tenant undertakes to adapt a rented space to their specific needs. Usually, the space is handed over in shell condition. The tenant then designs the interior fit-out themselves to make the rooms usable for their business activities. This ranges from the spatial layout to technical installations and reflects the company's workflows and brand identity.

Legally speaking, a tenant fit-out involves “renovations and modifications to the object” by the tenant, as regulated in the Swiss Code of Obligations (CO).

Typical examples of a tenant fit-out

The tenant fit-out can encompass a variety of works, including:

• Spatial layout: Creation of offices, meeting rooms, and quiet zones using lightweight or glass partition walls.

• Surface design: Laying of flooring (carpet, parquet, vinyl), painting work on the walls, and installation of acoustic or plasterboard ceilings.

• Technical installations: Installation of the electrical distribution from the main distribution board, laying of IT cables, and implementation of a customized lighting concept.

• Custom-made fixtures: Installation of a kitchenette, a reception desk, built-in cabinets, or media technology in conference rooms.

Core and shell vs. tenant fit-out: The clear distinction

To understand the tenant fit-out, it must be distinguished from the core and shell.

• Core and shell: This is the basic structure of the building provided by the landlord. It ensures the fundamental usability of the property. This includes load-bearing walls, the facade, the roof, as well as the main connections for water, electricity, heating, and ventilation. The floors are usually in a screed state and the walls unplastered. Common areas such as stairwells, elevators, and restroom facilities are generally also part of the core and shell.

• Tenant fit-out: This builds upon the core and shell and includes all tenant-specific adjustments within the rented space.

The exact distinction is crucial for cost allocation. It is often detailed in a so-called tenant fit-out takeover agreement or in the lease agreement itself, frequently based on the Construction Cost Plan (BKP).

The legal framework in Switzerland

The tenant fit-out is more than just a design task – it has clear legal frameworks. The Swiss Code of Obligations (CO) sets the rules of the game.

Written consent from the landlord

The most important principle is found in Art. 260a Para. 1 CO: The tenant requires the written consent of the landlord for significant changes to the rented property. Any modifications affecting the building's fabric, altering its appearance, or potentially impairing the interests of other tenants are considered “significant”. This includes the installation of walls, changes to electrical or sanitary installations, or the fitting of a kitchen.

The consent must be given in writing; an email is formally insufficient. Tenants should submit detailed construction plans to the landlord for review early on, ideally during the lease negotiations.

Obligation to dismantle at the end of the tenancy

If the landlord has agreed to the fit-out, they generally cannot demand dismantling and restoration to the original condition at the end of the tenancy. However, they can explicitly reserve this right in the written agreement (Art. 260a Para. 2 CO). In practice, it is often contractually agreed that the tenant must remove the changes made at their own expense.

Compensation for added value

If the tenant fit-out represents a considerable added value to the property at the end of the lease, the tenant is entitled to compensation according to Art. 260a Para. 3 CO. This is calculated based on the remaining value of the investment at the time of moving out, not on the original costs.

However, in many commercial leases, this claim is contractually waived. It is often agreed that the investments made will pass into the landlord's ownership without compensation.

What tenants and landlords should pay attention to

A successful tenant fit-out requires close cooperation and clear agreements.

For tenants:

1. Careful planning: Clarify your space requirements, also with future growth in mind. Create a realistic budget.

2. Early consultation: Discuss all desired changes with the landlord before signing the lease.

3. Contractual agreement: Record all agreements in writing. Who bears which costs? Who is responsible for which works? What happens to the fixtures at the end of the lease term (dismantling or compensation for added value)?

For landlords:

1. Professional execution: Ensure rapid and professional implementation on your part and adhere to budgets and timelines.

2. Risk of builder's lien: If the tenant does not pay their craftsmen, they can register a builder's lien (Bauhandwerkerpfandrecht) on your property. This means that, in the worst-case scenario, you are liable for your tenant's debts.

3. Clear contracts: A detailed tenant fit-out takeover agreement protects you from unpleasant surprises and clearly regulates the rights and obligations of both parties.

Your path to the perfect tenant fit-out

A well-planned tenant fit-out in Switzerland transforms an empty space into a functional and representative business environment. The key to success lies in transparent communication and a solid contractual foundation that takes the interests of both tenants and landlords equally into account. By knowing the definitions of core and shell and tenant fit-out and observing the legal requirements, you create the basis for a smooth project and a long-term, successful tenancy.