How Tenants Can Limit Lease Surrender Liability

Looking forward to a new chapter in your business, you just moved into your new office space.  Your old office building is, however, haunting you after receiving an invoice from your prior landlord for restoration obligations.  Most office leases contain a relatively innocuous provision commonly referred to as the “Surrender Clause” which spells out the obligations of the tenant to restore their premises to a certain condition upon lease expiration or termination.  Many tenants pay little attention to this provision in lease negotiations based on the conventional wisdom that the landlord will likely demolish their space and rebuild it for a new tenant.  In this post, I outline what tenants should consider in limiting their liability when surrendering their premises.

How Tenants Can Prepare for the Unthinkable

Hurricane Sandy devastates the northeast.  As recently reported on Bloomberg (http://www.bloomberg.com/news/2012-11-09/lower-manhattan-quiet-as-sandy-shuts-one-third-of-offices.html) 33% of the 101 million square feet of lower Manhattan’s office space was inoperable as of November 7th, several days after Sandy’s landfall.  Likewise, immediately after 9-11, areas of lower Manhattan were closed off for months.  Manmade disasters and storms are not just limited to New York or the coastal areas.  In 1992, Chicago’s Central Business District was closed for days due to a flood of an abandoned underground tunnel system.  Falling into the trap – “it’ll never happen to me” – many tenants and landlords pay short attention to the lease provisions pertaining to a casualty.  Outlined below are steps tenants can take pre-lease and during lease negotiations to safeguard their interests.   Also addressed below is where there is no damage to the building, but the building is inoperable due to lack of utilities, access, etc.    Most leases, however, do not provide the tenant with any rights if they are denied use of the building without building damage.  Under a separate post, I address what tenants need to know about insurance.

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