Collect Lost Rent If Tenant Leaves Space in Unrentable Shape

Are you fully protected if your tenant moves out at the end of its lease and leaves the space in such terrible shape that it’s unrentable right away? Your lease probably requires the tenant to pay for any costs and repairs that may be necessary, but that may not be effective to cover all of your losses. For instance, if the space sits vacant while you take six months to repair it, you would wind up not collecting rent—but you would still have to pay taxes and utilities. Unless your lease contains specific language, a court might not let you collect the lost rent, taxes, or utilities.

To make sure you don’t wind up in this situation, say in your lease that you have the right to consequential damages until the space is returned to rentable condition. Ask your attorney about using the following language in the Surrender of Premises clause of your lease:

Model Lease Language

Surrender. At the end of the term of this Lease, Tenant shall deliver the Premises to Landlord in good repair and condition, reasonable wear and tear arising from Tenant’s Permitted Use of the Premises as specified herein excepted, and Tenant shall surrender all keys for the Leased Premises to Landlord. Prior to the expiration or sooner termination of this Lease, Tenant shall remove any and all trade fixtures, equipment, and other unattached items which Tenant may have installed, stored, or left in the Premises. The Premises shall be left in a broom-clean condition. If Tenant shall fail to remove its trade fixtures or other property, the same shall be deemed abandoned by Tenant and at the option of Landlord shall become the property of Landlord, or at Landlord’s option may be removed by Landlord at Tenant’s expense. In the event Tenant does not make any repairs required after removal of such trade fixtures or other property, Tenant shall be liable for and agrees to pay Landlord’s costs and expenses in making such repairs, including but not limited to Landlord’s consequential damages as a result of Tenant’s failure to surrender the Premises in accordance with this Lease. Tenant’s obligations and covenants under this section shall survive the expiration or termination of this Lease.

In addition to protecting your ability to recover consequential damages, you should also require an adequate security deposit upon execution of the lease. Your lease should specify that you must be allowed sufficient time to assess and repair any damage to the space before you’re required to return the security deposit to the tenant. Consider adding the following sentences to a Security Deposit clause to ensure that the funds may be applied to your costs in returning the space to rentable condition:

Model Lease Language

Security Deposit. If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Security Deposit or any balance thereof shall be returned to Tenant after the expiration or termination of this Lease after Tenant has surrendered the Premises to Landlord in accordance with this Lease and paid all amounts due and owing to Landlord. In no event shall Tenant be permitted to use or designate the Security Deposit for the payment of Rent.

Lastly, in an effort to avoid future disputes upon surrender or termination of the lease, you should reserve the right to consent to any tenant alterations to the space. In doing so, you should take into account what happens to the alterations upon surrender: Will the tenant be responsible for removing its property, or do the alterations become your property? This of course will depend on the type of lease and alterations made, but thinking ahead on these issues and having procedures in place can save both you and the tenant from potential conflict and expense when the tenant is vacating the space.

Insider Source

Erica E. Ruggieri, Esq.: Horwood Marcus & Berk Chartered, 500 West Madison, Ste. 3700, Chicago, IL 60661; www.hmblaw.com.