Parting is Such Sweet Sorrow – Commercial Lease Restoration Clauses

In three separate incidents that I’ve witnessed, move out condition has become an important and major financial negotiation.  Two of the cases involved clients moving out of a property and debate over the “reasonable wear and tear” condition of the premises on vacating.  The other issue was over a proposed new lease with a rider describing the required condition that the space must be returned – in essence describing most of the preparation that a landlord would typically do to prepare a space for a new tenant.

The underlying issue here is not about the tenant’s treatment of the space, it is about the landlord’s increasing financial pressure to preserve precious cash.

In both of the “move out” circumstances above, the tenants planned and budgeted to:

  • remove all trash from the premises and leave broom clean
  • make sure that the heating, cooling, plumbing, and electrical were in safe and proper working order, and
  • properly repair and restore any unfinished construction left by the removal of their trade fixtures.

After doing so and vacating the premises, both received demand letters from the landlords to perform additional work such as: 

  • power wash warehouse floors and VCT tile,
  • paint walls that had been painted any color other than white,
  • remove improvements that were performed by the landlord for the tenant’s benefit prior to the tenant taking occupancy,
  • replace an HVAC unit that was in “poor condition” (although working), and
  • clean cobwebs from the joists of a 24′ clear warehouse

Notable is that both leases required maintaining the premises in good condition, “excepting reasonable wear and tear”.  In one circumstance the tenant was in the space for ten years, in the other eighteen – so these are not new buildings.  What is “reasonable wear and tear” after eighteen years?  While you’d think that a landlord would be happy to have had such a good paying tenant for such a long run and no vacancy, in this case the landlord is threatening legal action if the tenant doesn’t meet the landlord’s (undefined in the lease) opinion of “reasonable” wear and tear.

The third case is perhaps a pro-active landlord’s way of protecting themselves from such an issue, by creating an addendum that gets inserted as Exhibit D to a lease that describes similar conditions as those above including “Replace or restore any chipped or cracked Formica on cabinetry or countertops”.  At the end of a ten year lease?  You’ve got to be kidding, right?  Didn’t the tenant pay for that cabinetry with their improvement allowance?

The cases described here are not about the tenant damaging the property or not fulfilling reasonable obligations.  The issue is that some landlords are looking for every way to squeeze tenants, and money to simply freshen up and prepare a space for the next tenant is not a cost that they can pass through in operating expenses or amortize in the next tenant’s improvement allowance.  And, perhaps, it is also something that they can easily get passed over in the initial lease negotiations.

How to protect yourself?  Notify your landlord of your intended actions prior to vacating the space.  Do a walk through of the space with the property manager to note any damage or repairs required 30 days prior to vacating and make sure you each sign, date, and keep a copy.  On new leases, be very careful as to what you agree to regarding the return condition of the premises.  Companies are usually so focused on getting into a space that exiting conditions are not often a pressing concern.

That still may not be enough to protect you from an unethical or desperate landlord, although it will certainly help.