I have been involved in the leadership of the American Bar Association for the last several years. First, as Vice-Chair of the Leasing Group’s Emerging Issues and Specialty Leases Committee (2008-2012) and most recently acting as the coordinator of the ABA presentation series “The Nuts and Bolts of Leases”. Nuts and Bolts consists of ½ hour calls every other month, each with a speaker or speaker(s) that focus on a specific lease provision or issue and discuss its implications for the landlord and tenant. Since I took over in October, we have discussed Relocation Clauses, Letters of Intent, Differences between Ground and Space Leases and, most recently, Surrender Clauses.
While I may highlight some of the prior topics in future postings, our most recent discussion featuring Surrender Clauses was hosted by Benton Williamson of Haynsworth Sinkler Boyd, P.A. in Columbia, South Carolina. In his presentation, Benton noted that landlord’s used to be less concerned about move-out condition as their expectation was that they could quickly procure a new tenant and, based upon the value of the new lease, obtain a loan to build-out the space for the new tenant (demolishing anything left behind by the prior tenant that was not easily and cost effectively salvaged). Now, facing longer vacancy terms and wanting to place as much economic burden on the tenant as possible, Landlord’s are becoming more and more aggressive in their interpretation of surrender clause.
The presentation highlighted the need to avoid unnecessary disputes by encouraging counsel to have the parties negotiate the move-out condition of the leased premises when the lease is negotiated, particularly stating which party is required to bear the expense of the removal of any improvements made specifically for the tenant (either at the beginning of the term or during the tenant’s occupancy). The Landlord and Tenant should specify if other related improvements outside the Premises need to be removed and make sure that there is a clear understanding of the allocation of responsibility for removal of those items (for example, signs, wiring and cabling extended out through risers and into communications rooms, special fixtures and any supplemental systems (HVAC for IT rooms for example). Finally, the tenant should make sure that it is clear that the tenant is not responsible for the replacement of the building systems (HVAC, roofing etc.) that have only been subjected to ordinary use by the tenant.