Tenant Personal Property – CHAPTER 2 – Close Eye

watching eye 2So, the Lease is underway. As Landlord, you are gliding along with the Tenant paying rent and not causing trouble. Here are a few reasons to keep an eye on things:

1.  Alterations – Tenants, especially successful tenants, will want to amplify their space with additional changes. This also is a natural result of a sublease or assignment.  Make sure as a landlord you know exactly what is contemplated and when (and who) will make the upfits. Your lease could be the best in the world at creating hoops for tenants to jump through to report and properly construct alterations before construction begins. However, in practice, due diligence is still the key. The worst of all worlds is to approve alterations to the premises and not follow-up on their progress, especially when it may alter the structure or cause problems with other tenants. A two-way dialogue is best throughout the process, may be three ways if a franchisor and contractor are involved.

2.  Improvements – This is a good sign that the Tenant is doing well and wants to solidify or expand its presence in the Center, Park or Building.  However, the key issue is whether the requested improvements will (or might) become fixtures that are attached to the Premises and may be property of the Landlord, depending on how the Lease is worded.  Hopefully the Lease calls for the Tenant to disclose the plan for the improvements the same as the alterations to the Premises. If not, trouble.  If so, Landlord do not fall asleep  on these modifications to the Premises.  Many tenants will also reserve the right to remove the “improvements” upon termination or earlier vacating of the space.  If so, landlords need to make sure they agree as such before the improvements are constructed to avoid a showdown upon vacating (and thereafter). A true tenant fixture (tables, chairs, shelving etc.) should be distinguished from  a fixture (hood, walk in cooler, new doorway etc.). This is never easy, but getting ahead of it is key to later disputes.

3.   Assignment – So the Landlord and the Tenant have agreed to assign the lease to a separate entity/business. Among the many issues should be who takes what, why,  and  what is the status of what is left behind.  Beyond the agreement between the tenant/assignor and the new tenant/assignee, the Landlord should be concerned about several things. First, what is taken out of the premises in the transition. Any fixtures? Any damage? Second, what will the assignee add to the premises (or take away). This is important.  Third, is this a true assignment or just a sublease in disguise (see below)?  Fourth, is the assignor still liable for personal property issues?

4.   Subletting – A true sublease will require the Tenant to be required to watch over and be responsible for the Sublessee.  As landlords, be sure this is the case. In may jurisdictions, it is easy to allow the sublease to become an assignment by the language of the lease.  Aside from that issue, the Sulessee should be required to follow and abide by the terms of the Lease. Consent Requirements are key here. As Landlord, the owner will want to make sure they are made aware of the Sublesse’s activities in the Premises. Not only the use, but also any additional activities of the Sublesee, despite the language of the Lease and the Sublease.

5.   Maintenance and Financial Status – Sure. This is essential to any agreement to sublease or assignment of the Premises to another entity or even to monitor the Tenant. Most landlords protect themselves well with the language of the Lease.  But that is only the foundation.  Follow-up  and supervision through property management is the key here. Does the Tenant have the financial wherewithal to run its business and pay vendors including the Landlord.  And, is the HVAC maintenance contract still in force. Is the Tenant or its Sublessee/Assignee following the plan and requirements for maintaining the Premises?

Keep a close eye on the occupant and the premises!



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