Address move out concerns prior to signing your lease
Blog Post
It may seem counter-intuitive, but one of your biggest concerns when negotiating a lease to move into a new space is your surrender obligations when you move out. As the tenant, when your lease expires, you do not want to be surprised if your landlord requires you to remove all of the improvements that you made and return the condition of the premises to the condition that it was in prior to the landlord transferring possession to you. As part of the lease, it should be clear what, if any, improvements will have to be removed at the end of the term. My preference is that the tenant should not have to remove any of the initial improvements that had to be made just so the tenant could occupy the premises. For any future improvements, the landlord should notify the tenant as part of their consent to such improvements on whether the improvement will need to be removed at the end of the term.
Another consideration is your ability as a tenant to remove your fixtures and equipment. If any of your fixtures and equipment are permanently attached to the premises, the landlord may argue that those fixtures and equipment are now part of the building and the landlord’s property. Your lease should clearly provide that you can remove any of your fixtures and equipment that are specific to your business, such as audio/video equipment, supplemental cooling systems, security systems, etc. Many times I recommend that the parties attach a list of fixtures and equipment that they will remove at the end of the term so that there is no confusion.
Your repair obligations are another area of concern. You should not have to leave the premises in better condition than when you received it. Also, as the tenant, you will want the condition of the premises to be subject to normal wear and tear, because improvements naturally wear out over time. If the space is industrial space, you may want to further define what “normal wear and tear” is. As the tenant, you will not want to replace big ticket items, like the roof or the HVAC unit right before you are exiting the premises as another party will be receiving most of the useful life of such items. The landlord should be responsible for capital improvements and if you are required to contribute to their cost, the contribution should be limited to your pro rata share of the useful life of such items. For example, if your landlord replaces the HVAC unit when you have two years left on the lease and the new unit has a useful life of 20 years, you should only be responsible for paying 1/20 of the cost of that unit in each of those two years.
Overall, your surrender obligations should be clearly identified in the lease so that there is no confusion what those obligations are in the future – which could be 10 or more years after you negotiated the lease and a new landlord is the owner of the property.