Don’t Get Burned by Complaints about Returned Space

Q: The owner of the office building where I rent space wants me to sign a new lease instead of renegotiating and amending the existing lease. This is the first time I’ve been asked to sign a new lease for the same space. I’d like to spread out and rent the floor above my space, too. The owner wants to sign a separate new lease for that space. Can you see any pitfalls I should avoid in this type of scenario?

A: Yes, you should make sure that the owner has realistic expectations as to the condition the spaces will be in at the end of the respective leases. When your owner uses a new lease with an existing tenant it most likely will specify the requirements for the condition of the space at the lease’s end. If you’ve had a good relationship with the owner and there’s been no reason for it to examine the space recently, it might be unaware of what the space looks like as compared to the start of the term when it was probably newly cleaned and refreshed. Typically, “wear and tear” is accepted by most owners when a lease term is over. But a space that’s been housing a business for many years—decades, even—might have a lot of wear and tear just from average continued use. If the owner signs a new lease with you for, let’s say, a 10-year term, and you’ve already been in the space for 20 years, it would be unrealistic to expect you to return the space to it in the same condition as when you first took possession of the space under the original lease, after 30 years of use. It’ll get an unpleasant surprise that you’ll be penalized for. So make sure that your lease sets more realistic expectations, and the owner sees that normal wear and tear has already taken a toll on the space. To do this, you should delete “beginning of original term” language. Instead of allowing the lease to require you to return the space in the condition it was in at the start of the original lease many years ago, take out any language that says you must return the space in the same condition it was in “at the beginning of the original lease” and replace it with “at the beginning of the lease dated…” and then insert the new lease’s date. But you should also ask the owner to inspect the space prior to the beginning of the new lease’s term and you both should document the condition at that point in time and agree that it’s acceptable before moving forward and creating more wear and tear.

For Model Language that you can use in your new lease for your current space to accomplish this, see “Setting Realistic Standards for Returning Space,” available to subscribers here