Upon the termination or expiration of a commercial lease, the tenant surrenders the leased spaced to the landlord. With the uptick in commercial tenants terminating their leases and vacating leased premises due to economic issues, we have seen numerous tenants get themselves into trouble by failing to properly address their termination. When a lease termination occurs, the tenant should consider the following five issues to avoid unexpected obligations and expenses:
1. Signage: A tenant should review its lease regarding removal of signage. Retail and office leases commonly require the tenant to remove all exterior signs, whether on the premises or elsewhere at a shopping center or office building. It is also common that a tenant is required to pay for any damage caused by the removal of signage.
2. Security Deposit: Tenants should review their lease to confirm when, and under what circumstances, the landlord must return the security deposit. Tenants may also want to have a pre-surrender walkthrough of the premises to confirm with the landlord that there are no issues that would allow the landlord to retain a security deposit.
3. Alterations: If possible, tenants should confirm that they do not need to restore the premises back to its original buildout. Indeed, if the tenant made any alterations or improvements, the tenant should try to have the landlord agree that any alterations the tenant made during the term may remain in the premises when surrendered.
4. Existing Improvements: Oftentimes, businesses lease or sublease space that was previously improved by a prior tenant for a prior lease. Tenants should confirm they have no obligation to remove any improvements that existed on the date they took possession.
5. Holdover Provisions: Most leases contain holdover provisions that require tenants to pay a large penalty when they do not properly surrender and vacate the leased premises. In order to avoid a penalty, tenants should confirm their surrender date in writing with the landlord.
The items above are just a brief outline of the issues that a tenant should consider prior to vacating their leased premises. Other issues, such as the overall condition of the leased space, the determination as to what constitutes personal property and fixtures, and the like, should also be considered by a tenant. For more information on terminating your commercial lease, feel free to email me at patrick@mandglawgroup.com; or call 602-533-2840.
Patrick R. MacQueen is a founder of MacQueen & Gottlieb, PLC.
