[WSBARP] Tenant improvement payments after termination of lease

[Timothy Lehr]

All,

 

PC is a commercial tenant (medical office) and needs guidance on the
expiration of a commercial lease agreement. There's an issue with tenant
improvement payments that I have yet to encounter. 

 

Tenant has 5-year commercial lease for his family medical practice. The
lease includes a provision that Landlord (LL) will expend $50k for a remodel
of the building and Tenant will cover any costs in excess of that. It goes
on that Tenant shall be responsible for $35k of "Tenant improvements" to be
amortized over a 60-month period and included in the monthly rent. So,
Tenant pays an extra $500 or so per month to cover the Tenant Improvement
costs.

The lease included an option to buy at the end of the 5-year term. Under the
option to buy (if exercised), the $35k would be credited to the purchase
price.

 

Currently, the lease is set to expire in the next 3 months and Tenant
doesn't wish to exercise the option. Tenant has paid the full $35k during
the term of the lease. Tenant wants to negotiate with LL about an early
termination (Tenant has since found another building he plans to buy and
move his practice to). If early termination is possible, about $7k would be
what LL would lose in rent for the remaining few months of the lease term.
LL and Tenant have a good working relationship.

 

Question -Does he just lose the $35k at the end of the lease term if he
doesn't exercise the option? The lease is silent to this point, so I wonder
if there's any precedent, case law, or general business practice that covers
this type of scenario. Can Tenant use the $35k paid during the term of the
lease as a bargaining chip in a negotiation to terminate the lease a few
months early?

 

Tenant wants to come to a win-win situation with the LL as they have a good
relationship, but I want to determine all his options and potential
bargaining chips that he might have. Any thoughts on this are appreciated!

 

Tim

 

Timothy C. Lehr

Attorney at Law

Stiles Law Inc., P.S.

 

p:   360.855.0131

e:   timothy at stileslaw.com <mailto:timothy at stileslaw.com> 

w:  www.stileslaw.com <http://www.stileslaw.com> 

 

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