Andrew Shure Published in Commercial Leasing Law & Strategy

Andrew’s article, “Issues Related to Turnover of Leased Premises at Expiration of Lease Term” in the July issue of Commercial Leasing Law & Strategy, is a practical analysis of important items for both landlords and tenants to address before lease signing.

During the negotiation and drafting of a lease, attention is too often focused on initial matters of importance. “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 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.”

The language used to draft the lease is of great importance regarding the issue as to whether the tenant is permitted to leave the premises in its improved condition or if the tenant must remove any improvements they have made and return the space in its “shell” condition. Andrew describes one solution in which a lease would allow the landlord to “control the process” by making “its election concerning the removal of alterations right up until the expiration of the lease term. Some leases actually allow the landlord to wait until 10 days prior to the expiration of the term before the landlord has to decide whether or not the tenant will have to restore the premises to the condition that existed at lease commencement.” This situation would not be ideal, of course, for a tenant who knows from the onset that they would need to make substantial renovations to the space over time. It could also result in unanticipated restoration costs, which, if not completed quickly enough (i.e. 10 days), would result in “hold-over status and incurring the additional penalties and costs associated therewith.” If landlords are not permitted to use such an option, he advises them to familiarize themselves with the tenant’s business type and respective needs, and how that will impact the space for potential future tenants.

Andrew notes that initial tenant improvements versus future improvements are treated differently in many leases and can lead to misunderstandings. “Only by carefully analyzing these issues during the lease negotiation and drafting accordingly, will future disputes be minimized.” In closing, Andrew counsels that “Since the dollars involved in premises restoration are significant, and since one of the goals of any lease is to avoid disputes in the future, both landlords and tenants need to focus on the turnover sections of their leases and draft with a conscientious hand.”