Tenant Improvements????

Question

How are tenant property improvements handled???

Example.
Tenant installed laminate flooring.  
Tenant installed new exterior door.
Tenant installed fence on the property.  
Floor to ceiling mirrors glued to drywall.
Tenant installed wood baseboard.

I have a tenant moving out of my office building.  She had improvements made to the suite.  Some before I purchased the property and some after.

She still had 6 months remaining on her lease and I offered to let her end the lease early if she didn't strip the unit.

She decided the 1,000 ft of used laminate, and mirrors were worth bickering over.

Now I have a 45ft wall that is pretty much destroyed from tearing the mirrors off.  She agreed to have the wall repaired.

I also am going to have to purchase 1,000 sq/ft of new flooring.

I've been pretty accommodating through the whole process and now she's getting quotes to remove a wood privacy fence that is about 100ft long.

Just curious how I should handle this?  For this particular situation and future reference.

She still had 6 months remaining on her lease agreement for 650 per month.

This is the first time I've had someone walk out early on a lease.

She gave me no notice.  My wife just happened to notice she was celebrating the purchase of a new studio and asked if she would be leaving.

It was a 2 fold slap in the face.  I'm actually losing a total of 1800 in rental income (Occupied 2 units), and now I have to spend 3-4,000 cleaning up the mess she made by stripping down the unit.

Steve Babiak · Answer

The short answer is: Don't let tenants make improvements.

By following that approach, you avoid the sorts of issues that are mentioned in the OP here.

Edit: Of course, that is sound advice for Residential property.  Apparently, the OP has a Commercial property.  With commercial property, tenants will typically be allowed to make specific improvements.  The Commercial lease is the document governing what happens with improvements.

What did your lease say?  Who produced / provided your lease that you are using?

Jon Holdman · Answer

Your paragraph six is terrible.  You need to get a lawyer to help you clear that up.  No way would I consider a fence or laminate flooring to be "personal property".  My (residential) lease says any improvements made to the property become my property, and I'd would consider those items to be mine when they moved out.

Maybe I missed it, but I don't see anything about the lease term.  Typically leases state the tenant is responsible for the entire term, even if they move out.  So, she would continue to be responsible until the lease ends or you find a new tenant, whichever happens first.  But I don't see that clause in your, though I only scanned quickly.

I also have a fee for failing to give proper notice.

I think you need to have a chat with a lawyer to 1) figure out how to handle this tenant, and 2) review your lease.  I didn't read it carefully, but those sections seem very loose to me.

Ed L. · Answer

Yea I think it's time to phone my attorney.

I will be sure to have him draft a proper lease agreement to prevent future headaches.

The one posted was incredibly vague with regard to early termination IMO..

If anyone feels like sharing a quality lease agreement I would be greatly appreciative.

I wouldn't be so sore about the whole ordeal if she had given me proper notice.

I literally had 3-4 people call me looking for space a couple months prior to this whole ordeal.  Of course they have already found suitable properties.

The stripping of the unit was basically the cherry on top.

On the bright side.  I have secretly wanted the space to expand my real estate office since purchasing the building.

Pretty excited about the renovations, and I finally found a affordable finish carpenter.

Steve Babiak · Answer

Don't forget paragraph 5, that puts the Tenant on the hook for repairs to certain things like walls.

Paragraph 1B covers the notice you were to be given - looks like 90 days.

Paragraph 2A indicates that the monthly payment is an installment on the annual rent amount.

So, if this is the actual lease in place, it would appear that you are owed for a full year's rent, based on how paragraph 2 can be interpreted.

This is the sort of thing where you hire an attorney to draft a letter that requests payment of your damages; failure to pay leading to the attorney filing civil suit for the monetary damages.

Can you get a stronger lease? Probably - there is almost always some stupid detail that allows for a silly loophole that can be exploited by anybody savvy enough to notice.

Good Luck.

Cheryl C. · Answer

The improvements sure don't sound like "temporary installations".  Even if they were, the lease requires her to repair damage caused by removal.  Did you agree to release her from the lease?  Did you tell her she could take up the flooring or rip the glued mirrors off the walls?  The fence may qualify as a temporary installation but she needs to refill post holes, etc.  I'd be having a fit about the whole thing.  To me "temporary installations" are cubicles or something similar - but I'm not a commercial LL.

Ed L. · Answer

There's my generic lease agreement.   It's pretty clear on improvements under section 6.

One of those things that you don't really expect to deal with.  I just can't imagine the hassle of taking up precut cheapo laminate flooring.

The lease doesn't really specify how early termination is handled.

Would the tenant be liable for the full amount?

or

Would they be liable until I find a new tenant?

I think I will be on the lookout for a new lease agreement.

Ed L. · Answer

This Commercial Lease Agreement (“Lease”) is made and effective [Date], by and between [Landlord] (“Landlord”) and [Tenant] (“Tenant”).
Landlord is the owner of land and improvements commonly known and numbered as [Address of Building] and legally described as follows (the “Building”): ____ [Legal Description of Building]
Landlord makes available for lease a portion of the Building designated as [Suite or Other Number of Leased Building] (the “Leased Premises”).
Landlord desires to lease the Leased Premises to Tenant, and Tenant desires to lease the Leased Premises from Landlord for the term, at the rental and upon the covenants, conditions and provisions herein set forth.
THEREFORE, in consideration of the mutual promises herein, contained and other good and valuable consideration, it is agreed:
1. Term.
A. Landlord hereby leases the Leased Premises to Tenant, and Tenant hereby leases the same from Landlord, for an “Initial Term” beginning [Start Date] and ending [End Date]. Landlord shall use its best efforts to give Tenant possession as nearly as possible at the beginning of the Lease term. If Landlord is unable to timely provide the Leased Premises, rent shall abate for the period of delay. Tenant shall make no other claim against Landlord for any such delay.
B. Tenant may renew the Lease for one extended term of [Renewal Term]. Tenant shall exercise such renewal option, if at all, by giving written notice to Landlord not less than ninety (90) days prior to the expiration of the Initial Term. The renewal term shall be at the rental set forth below and otherwise upon the same covenants, conditions and provisions as provided in this Lease.
2. Rental.
A. Tenant shall pay to Landlord during the Initial Term rental of [Annual Rent] per year, payable in installments of [Monthly Rental Amount] per month. Each installment payment shall be due in advance on the first day of each calendar month during the lease term to Landlord at _ [Landlord’s Designated Payment Address] or at such other place designated by written notice from Landlord or Tenant. The rental payment amount for any partial calendar months included in the lease term shall be prorated on a daily basis. Tenant shall also pay to Landlord a “Security Deposit” in the amount of [Security Deposit].
B. The rental for any renewal lease term, if created as permitted under this Lease, shall be [Annual Rent in Renewal Term] per year payable in installments of [Monthly Rental Amount] per month.
3. Use Page 1 of 6
Notwithstanding the forgoing, Tenant shall not use the Leased Premises for the purposes of storing, manufacturing or selling any explosives, flammables or other inherently dangerous substance, chemical, thing or device.
4. Sublease and Assignment.
Tenant shall have the right without Landlord’s consent, to assign this Lease to a corporation with which Tenant may merge or consolidate, to any subsidiary of Tenant, to any corporation under common control with Tenant, or to a purchaser of substantially all of Tenant’s assets. Except as set forth above, Tenant shall not sublease all or any part of the Leased Premises, or assign this Lease in whole or in part without Landlord’s consent, such consent not to be unreasonably withheld or delayed.
5. Repairs.
During the Lease term, Tenant shall make, at Tenant’s expense, all necessary repairs to the Leased Premises. Repairs shall include such items as routine repairs of floors, walls, ceilings, and other parts of the Leased Premises damaged or worn through normal occupancy, except for major mechanical systems or the roof, subject to the obligations of the parties otherwise set forth in this Lease.
6. Alterations and Improvements.
Tenant, at Tenant’s expense, shall have the right following Landlord’s consent to remodel, redecorate, and make additions, improvements and replacements of and to all or any part of the Leased Premises from time to time as Tenant may deem desirable, provided the same are made in a workmanlike manner and utilizing good quality materials. Tenant shall have the right to place and install personal property, trade fixtures, equipment and other temporary installations in and upon the Leased Premises, and fasten the same to the premises. All personal property, equipment, machinery, trade fixtures and temporary installations, whether acquired by Tenant at the commencement of the Lease term or placed or installed on the Leased Premises by Tenant thereafter, shall remain Tenant’s property free and clear of any claim by Landlord. Tenant shall have the right to remove the same at any time during the term of this Lease provided that all damage to the Leased Premises caused by such removal shall be repaired by Tenant at Tenant’s expense.
7. Property Taxes.
Landlord shall pay, prior to delinquency, all general real estate taxes and installments of special assessments coming due during the Lease term on the Leased Premises, and all personal property taxes with respect to Landlord’s personal property, if any, on the Leased Premises. Tenant shall be responsible for paying all personal property taxes with respect to Tenant’s personal property at the Leased Premises.
8. Insurance.
A. If the Leased Premises or any other party of the Building is damaged by fire or other casualty resulting from any act or negligence of Tenant or any of Tenant’s agents, employees or invitees, rent shall not be diminished or a bated while such damages are under repair, and Tenant shall be responsible for the costs of repair not covered by insurance.
B. Landlord shall maintain fire and extended coverage insurance on the Building and the Leased Premises in such amounts as Landlord shall deem appropriate. Tenant shall be responsible, at its expense, for fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the Leased Premises.
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C. Tenant and Landlord shall, each at its own expense, maintain a policy or policies of comprehensive general liability insurance with respect to the respective activities of each in the Building with the premiums thereon fully paid on or before due date, issued by and binding upon some insurance company approved by Landlord, such insurance to afford minimum protection of not less than $1,000,000 combined single limit coverage of bodily injury, property damage or combination thereof. Landlord shall be listed as an additional insured on Tenant’s policy or policies of comprehensive general liability insurance, and Tenant shall provide Landlord with current Certificates of Insurance evidencing Tenant’s compliance with this Paragraph. Tenant shall obtain the agreement of Tenant’s insurers to notify Landlord that a policy is due to expire at least (10) days prior to such
expiration. Landlord shall not be required to maintain insurance against thefts within the Leased Premises or the Building.
9. Utilities.
Tenant shall pay all charges for water, sewer, gas, electricity, telephone and other services and utilities used by Tenant on the Leased Premises during the term of this Lease unless otherwise expressly agreed in writing by Landlord. In the event that any utility or service provided to the Leased Premises is not separately metered, Landlord shall pay the amount due and separately invoice Tenant for Tenant’s pro rata share of the charges. Tenant shall pay such amounts within fifteen (15) days of invoice. Tenant acknowledges that the Leased Premises are designed to provide standard office use electrical facilities and standard office lighting. Tenant shall not use any equipment or devices that utilize excessive electrical energy or which may, in Landlord’s reasonable opinion, overload the wiring or interfere with electrical services to other tenants.
10. Signs.
Following Landlord’s consent, Tenant shall have the right to place on the Leased Premises, at locations selected by Tenant, any signs which are permitted by applicable zoning ordinances and private restrictions. Landlord may ref use consent to any proposed signage that is in Landlord’s opinion too large, deceptive, unattractive or otherwise inconsistent with or inappropriate to the Leased Premises or use of any other tenant. Landlord shall assist and cooperate with Tenant in obtaining any necessary permission from governmental authorities or adjoining owners and occupants for Tenant to place or construct the foregoing signs. Tenant shall repair all damage to the Leased Premises resulting from the removal of signs installed by Tenant.
11. Entry.
Landlord shall have the right to enter upon the Leased Premises at reasonable hours to inspect the same, provided Landlord shall not thereby unreasonably interfere with Tenant’s business on the Leased Premises.
12. Parking.
During the term of this Lease, Tenant shall have the non-exclusive use in common with Landlord, other tenants of the Building, their guests and invitees, of the non-reserved common automobile parking areas, driveways, and footway s, subject to rules and regulations for the use thereof as prescribed from time to time by Landlord. Landlord reserves the right to designate parking areas within the Building or in reasonable proximity thereto, for Tenant and Tenant’s agents and employees. Tenant shall provide Landlord with a list of all license numbers for the cars owned by Tenant, its agents and employees. Separated structured parking, if any, located about the Building is reserved for tenants of the Building who rent such parking spaces. Tenant hereby leases from Landlord _ [Number of Parking Spaces] spaces in such structural parking area, such spaces to be on a first come-first served basis. In consideration of the leasing to Tenant of such spaces, Tenant shall pay a monthly rental of [Parking Space Rental] per space throughout the term of the Lease. Such rental shall be due and payable each month without demand at the time herein set for the payment of other monthly rentals, in addition to such other rentals.
13. Building Rules.
Tenant will comply with the rules of the Building adopted and altered by Landlord from time to time and will cause all of its agents, employees, invitees and visitors to do so; all changes to such rules will be sent by Landlord to Tenant in writing. The initial rules for the Building are attached hereto as Exhibit “A” and incorporated herein for all purposes.
14. Damage and Destruction.
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Subject to Section 8 A. above, if the Leased Premises or any part thereof or any appurtenance thereto is so damaged by fire, casualty or structural defects that the same cannot be used for Tenant’s purposes, then Tenant shall have the right within ninety (90) days following damage to elect by notice to Landlord to terminate this Lease as of the date of such damage. In the event of minor damage to any part of the Leased Premises,
and if such damage does not render the Leased Premises unusable for Tenant’s purposes, Landlord shall promptly repair such damage at the cost of the Landlord. In making the repairs called for in this paragraph, Landlord shall not be liable for any delays resulting from strikes, governmental restrictions, inability to obtain necessary materials or labor or other matters which are beyond the reasonable control of Landlord. Tenant shall be relieved from paying rent and other charges during any portion of the Lease term that the Leased Premises are inoperable or unfit for occupancy, or use, in whole or in part, for Tenant’s purposes. Rentals and other charges paid in advance for any such periods shall be credited on the next ensuing payments, if any, but if no further payments are to be made, any such advance payments shall be refunded to Tenant. The provisions of this paragraph extend not only to the matters aforesaid, but also to any occurrence which is beyond Tenant’s reasonable control and which renders the Leased Premises, or any appurtenance thereto, inoperable or unfit for occupancy or use, in whole or in part, for Tenant’s purposes.
15. Default.
If default shall at any time be made by Tenant in the payment of rent when due to Landlord as herein provided, and if said default shall continue for fifteen (15) days after written notice thereof shall have been given to Tenant by Landlord, or if default shall be made in any of the other covenants or conditions to be kept, observed and performed by Tenant, and such default shall continue for thirty (30) days after notice thereof in writing to Tenant by Landlord without correction thereof then having been commenced and thereafter diligently prosecuted, Landlord may declare the term of this Lease ended and terminated by giving Tenant written notice of such intention, and if possession of the Leased Premises is not surrendered, Landlord may reenter said premises. Landlord shall have, in addition to the remedy above provided, any other right or remedy available to Landlord on account of any Tenant default, either in law or equity. Landlord shall use reasonable efforts to mitigate its damages.
16. Quiet Possession.
Landlord covenants and warrants that upon performance by Tenant of its obligations hereunder, Landlord will keep and maintain Tenant in exclusive, quiet, peaceable and undisturbed and uninterrupted possession of the Leased Premises during the term of this Lease.
17. Condemnation.
If any legally, constituted authority condemns the Building or such part thereof which shall make the Leased Premises unsuitable for leasing, this Lease shall cease when the public authority takes possession, and Landlord and Ten ant shall account for rental as of that date. Such termination shall be without prejudice to the rights of either party to recover compensation from the condemning authority for any loss or damage caused by the condemnation. Neither party shall have any rights in or to any award made to the other by the condemning authority.
18. Subordination. Page 4 of 6
Tenant accepts this Lease subject and subordinate to any mortgage, deed of trust or other lien presently existing or hereafter arising upon the Leased Premises, or upon the Building and to any renewals, refinancing and extensions thereof, but Tenant agrees that any such mortgagee shall have the right at any time to subordinate such mortgage, deed of trust or other lien to this Lease on such terms and subject to such conditions as such mortgagee may deem appropriate in its discretion. Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any mortgage, deed of trust or other lien now existing or hereafter placed upon the Leased Premises of the Building, and Tenant agrees upon demand to execute such further instruments subordinating this Lease or attorning to the holder of any such liens as Landlord may request. In the event that Tenant should fail to execute any instrument of subordination herein require d to be executed by Tenant promptly as requested, Tenant hereby irrevocably constitutes Landlord as its attorney-in-fact to execute such instrument in Tenant’s name, place and stead, it being agreed that such power is one coupled with an interest. Tenant agrees that it will from time to time upon request by Landlord execute and deliver to such persons as Landlord shall request a statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified), stating the dates to which rent and other charges payable under this Lease have been
Page 5 of 6
paid, stating that Landlord is not in default hereunder (or if Tenant alleges a default stating the nature of such alleged default) and further stating such other matters as Landlord shall reasonably require.
19. Security Deposit.
The Security Deposit shall be held by Landlord without liability for interest and as security for the performance by Tenant of Tenant’s covenants and obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of rental or a measure of Landlord’s damages in case of default by Tenant. Unless otherwise provided by mandatory non-waivable law or regulation, Landlord may commingle the Security Deposit with Landlord’s other funds. Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrearages of rent or to satisfy any other covenant or obligation of Tenant hereunder. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not in default at the termination of this Lease, the balance of the Security Deposit remaining after any such application shall be returned by Landlord to Tenant. If Landlord transfers its interest in the Premises during the term of this Lease, Landlord may assign the Security Deposit to the transferee and thereafter shall have no further liability for the return of such Security Deposit.
20. Notice.
Any notice required or permitted under this Lease shall be deemed sufficiently given or served if sent by United States certified mail, return receipt requested, addressed as follows:
If to Landlord to:
[Landlord]
____
[Landlord’s Address]
If to Tenant to:
[Tenant]
____
[Tenant’s Address]
Landlord and Tenant shall each have the right from time to time to change the place notice is to be given under this paragraph by written notice thereof to the other party.
21. Brokers.
Tenant represents that Tenant was not shown the Premises by any real estate broker or agent and that Tenant has not otherwise engaged in, any activity which could form the basis for a claim for real estate commission, brokerage fee, finder’s fee or other similar charge, in connection with this Lease.
22. Waiver.
No waiver of any default of Landlord or Tenant hereunder shall be implied from any omission to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. One or more waivers by Landlord or Tenant shall not be construed as a waiver of a subsequent breach of the same covenant, term or condition.
23. Memorandum of Lease.
The parties hereto contemplate that this Lease should not and shall not be filed for record, but in lieu thereof, at the request of either party, Landlord and Tenant shall execute a Memorandum of Lease to be recorded for the purpose of giving record notice of the appropriate provisions of this Lease.
24. Headings.
The headings used in this Lease are for convenience of the parties only and shall not be considered in interpreting the meaning of any provision of this Lease.
25. Successors.
The provisions of this Lease shall extend to and be binding upon Landlord and Tenant and their respective legal representatives, successors and assigns.
26. Consent.
Landlord shall not unreasonably withhold or delay its consent with respect to any matter for which Landlord’s consent is required or desirable under this Lease.
27. Performance.
If there is a default with respect to any of Landlord’s covenants, warranties or representations under this Lease, and if the default continues more than fifteen (15) days after notice in writing from Tenant to Landlord specifying the default, Tenant may, at its option and without affecting any other remedy hereunder, cure such default and deduct the cost thereof from the next accruing installment or installments of rent payable hereunder until Tenant shall have been fully reimbursed for such expenditures, together with interest thereon at a rate equal to the lesser of twelve percent (12%) per annum or the then highest lawful rate. If this Lease terminates prior to Tenant’s receiving full reimbursement, Landlord shall pay the unreimbursed balance plus accrued interest to Tenant on demand.
28. Compliance with Law.
Tenant shall comply with all laws, orders, ordinances and other public requirements now or hereafter pertaining to Tenant’s use of the Leased Premises. Landlord shall comply with all laws, orders, ordinances and other public requirements now or hereafter affecting the Leased Premises.
29. Final Agreement.
This Agreement terminates and supersedes all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only by a further writing that is duly executed by both parties.
30. Governing Law.
This Agreement shall be governed, construed and interpreted by, through and under the Laws of the State of Mississippi.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written.
[Landlord Signature]
[Tenant Signature] Page 6

Chris Masons · Answer

Hi Ed,

I guess this is commercial office space? If it was residential space any improvements that are made become my property IE. new door , new flooring etc... I haev it written in mym leases

I have went half with tenants on new flooring and carpeting in teh past with the agreement that everything stays if and when tenant moves out.

So she is ripping up the laminate flooring to reuse? What is she putting in it's place? And the wood fence she wants to take with her to use elsewhere? Wow, that is highly unusual in my experience. Was there any agreed upon terms when this work was done?

I take it she funded it all, which if there is nothing in writing I guess she has a right to take it but I am not so sure, does she??

The other thing, regardless of what she takes I would think she needs to leave the unit in condition it was when  given
her?

But then again I guess we are way beyond a 1.5 months security?

Any damage or cossts youcan try to go after her in a civil lawsuit but as I am sure you know will be tough.....

curious to hear others thoughts??

Chris

Tenant Improvements????

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