Get Seven Protections if Tenant Leases Furnished Office Space

If you are like many owners, you often rent furnished office space to tenants. But even though the tenant might pay little or nothing for the furnishings, the furnishings probably have significant value to both you and the tenant, notes New Jersey attorney Marc L. Ripp. The furnishings may also be the main reason why the tenant wants to lease that space, he adds.

However, if your lease is like many we have seen, it probably doesn't spell out the tenant's duties with respect to the furnishings. As a result, you could get burned at the end of the lease by being left with damaged or an incomplete set of furnishings. Or the tenant might try to claim ownership of the furnishings.

With Ripp's help, we will give you seven protections to cover in a furnishings clause to avoid disputes with a tenant over its duties regarding the furnishings, as well as who owns the furnishings. Ripp just finished negotiating a furnishings clause that included these seven protections for a big office lease in New Jersey. There is a Model Lease Clause on p. 9 that includes these protections, which you can adapt and add to your lease too.

Seven Protections

Make sure your furnishings clause, like our Model Lease Clause, includes these seven protections:

Tenant Must Make Key Acknowledgments

Require the tenant to make certain key acknowledgements concerning the furnishings in the lease, says Ripp. These acknowledgments address, among other things, the tenant's maintenance, repair, and replacement duties; the furnishings' condition; and that you did not manufacture the furnishings, says Ripp. For example, have the tenant acknowledge that:

• It will maintain and repair the furnishings in a first-class manner;

• It will replace the furnishings, if necessary;

• It has thoroughly inspected the furnishings and is satisfied with their physical condition;

• The furnishings are clean, functional, and in good order;

• It has not relied on any statements, promises, or warranties by you regarding the furnishings; and

• You are not a manufacturer or vendor of all or any of the furnishings [Clause, par. a].

Why are these acknowledgments important? Without them, the tenant could argue that you must maintain, repair, and replace the furnishings. Or the tenant might claim that it was not able to inspect the furnishings before the lease started, and that the furnishings are sub-standard and need to be replaced.

You Are Not Required to Make Representations

Put several key protections in the furnishings clause, says Ripp. For instance, state in the lease that you are not making any express or implied promises or representations regarding the design, condition, quality, or suitability of the furnishings, or that the furnishings will perform any function, advises Ripp. Otherwise, the tenant could claim that you made promises that you didn't keep regarding the furnishings.

Also, state that the tenant bears the risk of loss for the furnishings, and that the tenant will not get the benefit of any warranties on the furnishings, he adds [Clause, par. b]. Only you should get the full benefit of any warranties on the furnishings.

You Have No Repair, Maintenance Duties

Make it clear in the lease that you have no responsibility to maintain or repair the furnishings, says Ripp. Rather, the tenant must maintain and repair the furnishings—and pay all maintenance and repairs costs—to keep the furnishings clean, functioning, and in good order at all times, he adds [Clause, par. c].

Tenant Must Carry Insurance Covering Furnishings

Require the tenant to carry insurance that will provide coverage for the furnishings, advises Ripp. That way, you will have protection if any item of the furnishings is stolen, lost, or damaged, without having to pay for the insurance.

Also, make sure the tenant is responsible for replacing any stolen or damaged furnishings, Ripp adds. The replacement items should be as close to the original furnishings as possible. Therefore, specify that the new items of furnishings must be identical in dimension, weight, color, style, and quality to what was stolen or damaged, advises Ripp.

Require the tenant to give you a complete, accurate, and detailed, written description of all replaced items, together with a color photograph, so you know what the replacement is and what it looks like, he says [Clause, par. d].

You Will Remain Furnishings' Owner

Have the tenant fill out and sign, at your demand, any paperwork needed to show that you are the true owner of the furnishings, says Ripp. For instance, you may require the tenant to sign and give you security agreements, and/or financing statements indicating that you are the furnishings' owner. This way, the tenant can't later claim that it owns the furnishings.

Also, state that the tenant cannot remove the furnishings from the tenant's space, nor can the tenant do anything that will result in a lien being placed on the furnishings, says Ripp [Clause, par. e]. For example, if the tenant takes out a loan, it can't use the furnishings as part of its collateral, he explains. Otherwise, if the tenant defaults under its loan, the lender could confiscate your furnishings.

Furnishings Must Remain in Space at Lease End

Make clear that the furnishings must still be located in the space when the lease ends. Otherwise, the tenant might try to remove them without your consent. Also, the furnishings must be clean, functional, and in good order, says Ripp [Clause, par. f].

You Can Transfer Ownership of Furnishings to Tenant

Get the right to transfer ownership of the furnishings to the tenant, says Ripp. After all, if the tenant has used the furnishings for a long time, they may have become worse for wear. Thus, you may not want them back when the lease ends, he explains. Rather, once the furnishings' ownership transfers to the tenant, it will have the responsibility to remove the furnishings from the space at lease end at its sole cost. Also, the tenant must fix, at its sole cost, any damage to the space and building as a result of the removal.

To ensure that the transfer of ownership is performed smoothly, have the tenant name you as its attorney-in-fact under a power-of-attorney, advises Ripp. That way, you will have the authority to sign title documents—such as a bill of sale—on the tenant's behalf, to effectuate the transfer, he explains. Otherwise, the tenant may be uncooperative or drag its feet in signing such paperwork.

Finally, make sure the tenant must take the furnishings in their “as is” condition and state of repair. Otherwise, the tenant might try to come after you legally or financially if there is something wrong with the furnishings, says Ripp [Clause, par. g].

CLLI Source

Marc Leonard Ripp, Esq.: Senior Associate General Counsel, Mack-Cali Realty Corporation, Edison, NJ