Friday, March 16, 2012

Just What Am I Surrendering In a Surrender Clause?

by Chris Norwood, cnorwood@nainorwoodgroup.com
If you have a lease, either as a tenant or as a landlord, there is no telling how many pages it could be. Some of you may have three page leases, others thirty or more pages. It is safe to assume that if you have a three page lease, the likelihood of a surrender clause being inside is slim. But no matter how many pages, review your lease to find out if you have this clause, it could make all of the difference when the lease is done.

Surrender does not mean that you are laying down your arms and raising the white flag. In this case we are discussing what the condition of the leased premise will be when the tenant vacates the space. The clause will dictate what should stay or should leave with the tenant and what the consequences are if the tenant does not perform based on that outline.

There are no standards when it comes to what to expect when a lease is up. It is fair to say that reasonable wear and tear (carpet stains, wall marks) is acceptable to landlords, however this is not always the case. The largest thing to investigate from both a landlord and a tenant’s perspective is what if there has been construction. What happens then?

CASE STUDY:

Sally’s Seashells sells seashells in the seacoast. In her original 5 year lease Sally leased 1000sf in a small strip plaza. In her third year space was going so well that she leased an additional 1000sf. She knocked out a firewall that joined the two units and build out some new offices. In addition she installed, at her cost, a new loading dock so she could get larger seashells delivered. Now five years is up and she is leaving… What now?

In a simple context, most items that are affixed to ground will stay with the landlord. This would include new offices and a loading dock. But what if the loading dock at an electronic leveler, that was movable? What about the demising firewall, should Sally install a new one to put it back how it was? What if 2000sf units are now more leasable than 1000sf units?

A seemingly black and white lease clause becomes somewhat variable based upon market conditions and the desires of both parties. The recommendations, though simple, are very effective. 1) Before entering a lease, take pictures and itemize what is there. 2) if either side performs construction or amends the lease, itemize everything and discuss your intentions. 3) when tenants are known to be leaving start the conversation early, you may find that both sides share more common ground.

There are no guarantees and leasing is no exception. As such there are no “standards” when it comes to lease language, you must consult your own lease and your own counsel if necessary.  However, our team is always available should you have any questions on this clause or any other’s in your lease, we will be happy to point in the right direction.