When signing a new commercial lease agreement, most tenants aren’t thinking about moving out already. For many, the thought of jumping ahead years can be overwhelming and feel counterintuitive to reaching their goals while occupying the space.
However, if/when you decide to move office spaces again, you’ll want to be sure you leave your existing lease without penalties or lawsuits. If you do, that opens the possibility of unnecessary hurdles to clear before moving on to the next chapter—and real estate. (You’ll also want to negotiate a fair surrender of possession provision in your new lease for the next time around.) That is why the surrender of possession provision is important.
The Surrender of Possession Provision Explained
No matter the length of your lease, ensuring the surrender of possession provision is included in your contract, and that everyone involved understands its impact and limitations, is essential.
The surrender of possession provision outlines the tenant’s obligation to restore the location to an agreed-upon condition once the lease expires or is terminated. It also describes the tenant’s liability for wear and/or damage done to the property while under the contract’s date range. In most cases, the tenant is required to:
- Leave the space in the same condition as it was in on the first day the lease began, excluding ordinary wear and tear.
- Remove any furnishings and trade fixtures, often including all telecommunications wiring. The tenant must fix any damage caused when removing that wiring.
- Clear and repair any alterations (unless agreed otherwise) made during the lease.
At the time of termination, lease agreements may require tenants to do any or all of the following:
- Remove any exterior signage.
- Clear the premises of all inventory, equipment, furniture, supplies, wall decorations, trade fixtures, and personal property.
- Patch, refinish, or repair any significant damage to the building.
- Repair any damaged exterior surfaces. Replace or resurface outside areas, including paved surfaces (especially with single-tenant properties).
In the event that the tenant does not comply with the requested removals and repairs, the landlord usually has the right to complete them at the tenant’s expense. It is always in the tenant’s best interest to follow through on any of the items outlined in the provision requested by the landlord at the time of lease expiration or termination.
5 Ways to Limit Restoration Liability
No tenant wishes to make the transition to a new space more difficult than it needs to be. In order to limit the damage you may need to fix at the termination of your lease agreement, be mindful of the following:
- Improvements or alterations. This includes both fixtures and trade fixtures. Fixtures include items like desks, decor, and most appliances. Trade fixtures, however, include items that are necessary for the tenant to conduct business, such as a product display counter.
- Damage from installing signage. Be sure to repair or patch the building’s facade after removing any signage. In some cases, more advanced or larger signage may require significant repair.
- Your responsibilities as a sublessor. If you are able to sublet the space as outlined in the lease agreement, know that you as the sublessor are responsible for repairing any damages or changes done to the space during the sublease period.
- Triggering the holdover provision. It is wise to give yourself plenty of time to complete any necessary restorations to the space prior to the end of the lease. In some cases, remaining in the space past your lease expiration date could trigger the holdover provision, resulting in the tenant paying a significant rent increase as a penalty.
- Telecommunications cabling. In many cases, this is now required by local code. Leaving telecommunications cabling after leaving the premises may incur significant (and avoidable) penalties.
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