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Issues Related to Turnover of Leased Premises at Expiration of Lease Term
When landlords and tenants are engaged in the negotiation and drafting of a lease, all too often, their attention is focused on those matters that are the first to occur. As a result, too little attention is paid to the issues surrounding the return of the premises when the lease term expires. Obviously, the business terms of the transaction such as rent, operating costs, and construction allowances all must be identified before a deal can be reached. Furthermore, those matters that have a direct impact on the tenant's occupancy and use of the premises are of clear importance to the parties from an operational standpoint. However, when the landlord and tenant fail to give the same level of consideration to the expiration of the lease term that is given to the commencement of the term, problems can arise.
Condition for Delivery of Premises at Expiration of Lease Term
The parties to a lease should be very careful when describing the condition in which the leased premises must be returned to the landlord at the end of a lease term. The key concern is whether the tenant is permitted to leave the premises in its improved condition or if the tenant needs to remove the improvements and return the space to its 'shell' condition. The difference between the two can be immense. In the first example, a lease could state that the premises are to be returned to the landlord 'in good repair, order and condition, reasonable wear and tear and damage by casualty excepted.' Absent language to the contrary, the tenant's only obligation would be to repair any damage that is caused during the move-out. In the second example, a lease could state that the premises are to be returned to the landlord 'in the same condition as existed at the commencement of the term.' Assuming the premises was in its shell, unimproved condition at the term commencement, the tenant would have to remove any and all alterations that were constructed during the lease term. If the tenant was delivered an unimproved space and subsequently engaged in a comprehensive build-out, the cost of the restoration could be significant.
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