Keeping Up Standards for Returning Space

Q: It would be easier for me to sign a new lease with one of my office building tenants that wants to renegotiate its existing lease, rather than amend the current one. This is the first time I’ve gone through the process. Is there a common pitfall that owners forget about in this scenario?

A: Yes, owners who decide to use a new lease with an existing tenant might forget about specifying the requirements for the condition of the space at the lease’s end. If you’ve had a good relationship with this tenant and there’s been no reason for you to examine the space recently, you could be unaware of damage or unauthorized changes above and beyond the usual “wear and tear” that’s accepted by most owners. You may expect that the tenant will be returning the space to you in the same condition as when it first took possession of the space under the original lease. But if your lease requires the tenant to return the space in the condition it was in at the start of the new—not the original—lease, you’re leaving yourself open to footing the bill for repairs or a major clean-up job.

You can protect yourself, though, by doing two important things:

Delete “beginning of term” language. Check each new lease that you sign with a current tenant that wants to renew or renegotiate but that you’ve decided to execute a brand new lease with instead, and take out any language that says the tenant must return the space in the same condition it was in “at the beginning of the term.” This way, you avoid confusion as to which lease term you mean.

Add “first received” language. Then in each new lease, add language that says the tenant must return the space to you in the same condition the space was in when the tenant first received the space. This works especially well for situations where a current tenant signs a new lease for more adjacent space. For example, if a tenant got its first-floor space at the start of the original lease and expanded into a second-floor space at the start of a second lease, it must return the first-floor space in the same condition as of the original lease’s start date and the second-floor space in the same condition as of the second lease’s start date.

To do this, add the following language to a new lease—but remember to define the term “Prior Lease” elsewhere in the new lease.

Model Lease Language

Tenant hereby acknowledges and agrees that the condition in which Tenant shall be required to return the Premises shall be that which existed when delivery of possession was first made by Landlord to Tenant under each Prior Lease as to the “Premises” described in that Prior Lease.