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When Your Tenant is Moving in, It’s Time to Think About Your Tenant Moving Out

By: James Hochman, David Liebman, SIOR, JD

Your attorney co-author recently had the pleasure of representing a tenant leasing flex space in an established multi-tenant building. The tenant’s business is consulting on and overseeing kitchen and bath renovations, so space use for both showroom and office purposes is important. I gave my client an extensive review of the landlord’s form lease; we have all seen that sort of document before. The client had found the space directly and negotiated basic business terms with the landlord’s broker, without the usual benefit of a tenant’s broker’s input on the deal history, course of negotiations, and business terms comments. We forged ahead, communicating with the landlord’s attorney (one of Harvard’s finest, no kidding), and a landlord who had built, owned, and leased the property to multiple tenants for decades. One could say there was no lack of experience nor lack of confidence on the landlord side.

My client and I discussed his buildout plans for the space (at his own cost and his own pace); and in particular, the showroom plans. I had toured my client’s prior space, as he was moving out of a larger space when his employer was dissolving, and I had the opportunity to address the lease termination for the former employer and its landlord. The showroom was beautiful—one great looking kitchen setup or gleaming modern bathroom after another. However, the showroom did not use interior walls from floor to ceiling (each was a unit of its own), and while perfect for the client’s business, this is not something a landlord is likely to want to see remaining in vacant space when a new tenant is sought.

Among my lease comments was my request for the landlord’s move-out checklist—always a good idea to request, for several reasons. When a tenant knows in advance what restoration requirements its landlord will expect at lease end, the tenant can reasonably ask for their requirements to be met at the beginning of the lease term: all exit lights working, all HVAC fully functional, walls free from fork lift penetration, bollards upright, all electrical outlets and circuits functional, etc. With this move-out checklist in-hand, the tenant’s request for repairs to meet that checklist—at the outset of the lease term—becomes an extremely reasonable request.

However, this experienced builder/landlord and his counsel sneered at my request for that move-out checklist. They had none. We were somehow expected to know what would be expected at the end of the lease term. Then, the fun started. The landlord also wanted plans for all of the tenant’s future buildout, electrical plans, HVAC plans, floor plans for the showroom and multiple displays. “That’s fine,” we thought, the landlord owned the building, and if a tenant were to do their own buildout, it is reasonable to understand the use, see the plans, the permits, and approved contractors, etc. We were happy to oblige.

And then a funny thing happened: when the landlord received the information it requested of the tenant, the landlord had some very strong preferences (make that requirements) for how the space would be configured, both during and at the end of the lease term. With that, the landlord gave us a list of the items to be addressed at the end of the term: which party owned fixtures, what would stay and what must be removed, and so on. So lo and behold, we had the makings of the very thing I had requested: The Landlord’s Move-Out Checklist.

Now, without knocking this landlord or its esteemed counsel (both were professionals), I was happy to work though all lease issues with them. However, I think I may have shown them something: that the move-out checklist I requested is a good thing for all parties; and it then becomes an exhibit to the lease. Why, you ask? Because the building could be sold during your client’s lease term; and you want the parties’ agreement on that carefully written move-out checklist to be binding on the new landlord. Don’t expose your client to the risk of surprises if a new landlord suddenly wants/expects something different when the lease term ends.

Look down the road: from the outset of the term, right through its conclusion. That serves all parties’ best interests.


Media Contact
Alexis Fermanis SIOR Director of Communications
James Hochman
James Hochman
Schain Banks Kenny & Schwartz

Jim Hochman is a partner at Schain Banks Kenny & Schwartz law firm and freelance writer. Contact him at jhochman@schainbanks.com.

David Liebman, SIOR, JD
David Liebman, SIOR, JD
PowerPlay Real Estate Partners

David Liebman, SIOR, JD, is the Founder and Managing Broker of PowerPlay Real Estate Partners, a Chicago-based specialty commercial real estate services firm.  A former corporate and real estate attorney, David leverages that experience with 34-plus years of CRE brokerage expertise to exclusively advise and represent industrial and office buyers, tenants and investors in acquisitions, leasing, lease renewals/restructuring, land purchases and build-to-suit transactions.  During his career, David has completed more than 500 transactions, valued at over $800 million.