I live in Phoenix, AZ and am just about to pull the trigger on a catering kitchen for Q, so I can tell you what I figured out in my city. Each city will vary, but the general thinking is usually the same in most cities (I've also done this in L.A.)
You could either put your smoker outside his kitchen, and ask him if he is willing to let you do your required commercial kitchen prep inside his kitchen. This will require that you pay for your own standard catering or vending health permit and then receive an additional outdoor cooking variance permit. The outdoor cooking variance permit is given after meeting special conditions for using an outdoor smoker. In my city, I need an outdoor sink (the health dept told me I could use a temporary sink, though the literature on this says it needs to be plumbed), a 5' x 5' enclosure around the smoker so that pedestrians don't burn themselves or contaminate food (steel fence or otherwise), and a flat, hard surface that the smoker will be on that is easily cleaned (concrete is preferred, but asphalt that is even will work.)
You could just ask him to apply for the variance, and put your smoker out there as his "employee" and work out an appropriate financial arrangement (both for use of his kitchen and for his appropriate payment for your meat.) That might limit your use of the smoker to his meats, but then, if he's not willing to let you prep in his kitchen for other work this won't matter.
Alternatively, you can get your own kitchen, or find a shared commercial kitchen that is willing to let you smoke outdoors with an outdoor variance permit, or put an indoor smoker in the kitchen. Indoor smokers require class 1 exhaust hoods (in Phoenix anyway), and additional HVAC requirements (he spoke pretty fast through this part, and I knew I probably wasn't going to do it, so I forget exactly what they were; something about ducts and fans.) I wanted to do this, but realized I couldn't ask another building owner to alter his space without paying more in the monthly lease.
In some states, you can build out your own home commercial kitchen that is separate from your family's residential kitchen, and prep your food there. This has all the same req's as an off-site commercial kitchen, including either outdoor smoker variance or indoor HVAC req's.
Oh, and as far as pricing. It will be very difficult for you to make a profit selling him BBQ that he needs to resell. Hope that helps.