Avoid the White Flag by Negotiating Surrender Provisions in Commercial Leases

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The averageĀ base rent obligation over the term of the lease, in each commercial lease crossing my inbox in 2022, was over $1 million, exclusive of triple net charges and other potential obligations of a tenant that may arise during or after the lease term. Notwithstanding the importance of a lease to the balance sheets of both landlords and tenants, surrender provisions are commonly glossed over, and consequences can be detrimental to either side. At the end of the term, a landlord could be left with premises it is unable to lease without substantial monetary investment in renovation and repair; or a tenant may have significant liabilities to restore the premises. More frequently it is the tenant who is surprised – it understands it must pay the rent, and may anticipate investing in improvements in the premises initially, but expensive surrender obligations are usually not on its radar. Since landlords typically invest more resources in preparing the lease, and have well developed standards for how they want premises delivered at the end of the term, lease forms may contain traps for the unwary tenant.

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