Chapter 23 - § 23.2 • SURRENDER OF THE PREMISES

• Jurisdiction: Colorado

§ 23.2 • SURRENDER OF THE PREMISES

The provision of the lease regarding surrender of the premises usually covers: (1) the condition of the premises upon surrender; (2) the status of tenant finish and tenant's alterations (in particular, whether they need to be removed from the premises upon surrender); (3) the removal of tenant's property from the premises; and (4) what the landlord can do if the tenant stays in possession or the tenant's property is not removed. The surrender provisions usually survive the expiration or earlier termination of the lease.

Many leases deal with the above matters together in one clause. In other leases, these matters are dealt with in a variety of different clauses. The condition of the premises upon surrender might be dealt with in the clause about the acceptance of the premises or in the repair and maintenance clause. The status of the tenant finish and tenant's alterations is often dealt with in the alterations clause. The removal of the tenant's property also might be dealt with in the alterations clause or in a separate clause about the tenant's trade fixtures and personal property. Needless to say, all the relevant provisions, wherever contained in the lease, should be consistent with one another.

§ 23.2.1—Condition of the Premises Upon Surrender

Most leases will require that the premises be left "broom clean." That would not satisfy the wife of one of the authors, but it is an accepted norm in commercial leasing.

Leases generally also require that the premises be surrendered in "good order and repair" or something to that effect, or "in as good a condition as when the tenant took occupancy."³ If that is what the lease requires, without more, the tenant will want to add the following three exceptions.

First, the tenant will want to be excused to the extent the premises are affected by a fire or other casualty. If a casualty loss occurs, the tenant's responsibilities are as set forth in the damage and destruction provisions of the lease. In the absence of an agreement in the lease, the tenant has the duty to repair the premises in the event of casualty.⁴ Landlords generally allow an excuse for casualty losses, but some landlords limit the excuse if the casualty loss is caused by the tenant (and perhaps its employees, agents, invitees, or some combination thereof). This is a huge limitation! It means that the tenant is responsible for restoring the premises at the end of the term or earlier termination of the lease if the tenant has caused the casualty loss. That is a big undertaking. Sometimes such a limitation contradicts the damage and destruction clause. Sometimes such a limitation makes little economic sense because the tenant is paying for the landlord's property insurance, which covers damage and destruction regardless of whose fault it is. It makes no sense to the extent the tenant benefits from a waiver of subrogation provision, as discussed in Chapter 17 of this book. If the tenant agrees to such a limitation, the tenant must be sure that it will be able to recover sufficient amounts from its liability insurance to restore the premises following a casualty loss that is the tenant's fault. Liability insurance generally does not have as much coverage for casualty losses as property insurance does.

Second, the tenant wants to be excused from surrendering the premises in the same condition as when received, or in good order and repair, to the extent the premises have been affected by a condemnation. Landlords almost always allow this excuse. The condemnation clause generally provides the rights and responsibilities of the landlord and tenant following a condemnation.

Third, the tenant wants an exception for "ordinary wear and tear." This is a commonly accepted standard for the allowable level of deterioration in the quality of the premises from acceptance to surrender, based on the permitted use of the premises.⁵ Landlords almost always grant this excuse as well. Some landlords, however, seek to limit the amount of wear and tear that will be tolerated by stating that ordinary wear and tear does not include deterioration that could have been prevented by performing maintenance and repairs as required by the lease and otherwise complying with the lease terms.

§ 23.2.2—Status of Tenant Finish and Tenant's Alterations

Landlords take differing approaches to the status of tenant finish and a tenant's alterations at the expiration or earlier termination of a lease. Some landlords provide that tenant finish and tenant alterations...