Expert: Jim Avancena, CPM - 8/8/2008

Question
Hi, I own a small bakery in Georgia where I lease the building and have invested (stupidly) $50K towards the buildout.  My question is my commercial lease has the following paragraph: Alterations.  Lessee shall not, without first obtaining the written consent of Lessor, make any alterations, additions, or improvements, in, on, to or about the premises including but not limited to the attachment or erection of any fixture whatsoever, equipment or improvement to the premises.  Any and all alterations, additions, improvements in, on, to or about the premises shall remain the property of Lessor at the end of this lease.  My 1st question is: do they own my equipment and lighting etc as well?  Or just the hvac, electrical, etc that I put in?  2nd question: my name and my mom are named as the tenants to the lease but I am the only one they have a signature for.  Is this lease valid?  Thanks so much for any information you can give me.

Answer
Jill-

This is a bit complicated because the specific text of your lease (more than simply the text you listed in your question) is crucial to what options you have at this point.  

Regarding question ONE: Essentially, the first lease phrase you have quoted means that you MUST ask for, and first have, the landlord's WRITTEN CONSENT to make alterations, improvements,etc. within your premises.  This is standard language in a commercial lease.  Did you do this; both ASK FOR and receive approval in advance to move forward with putting in your improvements when you signed your lease?  Note that the text you have provided does not specify what rights the landlord has if you don't get the advance approval.  Is there other text in your lease that does specify the landlord's rights in this regard?

Unless your lease specifies otherwise, your landlord usually has the right to demand that you remove your improvements if you did not ask its permission before you put the improvements in.  Most landlords however, are sensible, and unless your improvements are not built to local building code, increasing the landlord's insurance premium for the premises, or otherwise creating a problem for the landlord and his property, the landlord may huff and puff about your "violation of the lease terms" or state that your are "in default of the lease" but it is unlikely the landlord will ask you to immediately remove the improvements.   Normally your improvements add value to the premises and the landlord would be an idiot to ask you to remove them during your lease term unless they create an additional cost to him over the lease term or pose an immediate problem.  However.....

As the end of your lease term approaches, the landlord will determine if he would like to have your business stay in the premises for a longer term.  If the landlord wants you to stay, he will try to renew your lease.  If he does not want your business to remain in his property for any of hundreds of reasons, the landlord will determine if it is to his benefit to have you leave any of your UN-authorized alterations, additions, or improvements behind.  The landlord may think your improvements will help him lease your premises to the next tenant and additionally increase the amount of rent he can collect for the premises.  If your UN-authorized improvements benefit the landlord if you to leave them behind, the landlord will send you legal notice telling you to leave your UN-authorized improvements behind un-damaged.  Note also that the landlord sometimes has the right (check the fine print in your lease text) to ask you to return the premises to the condition it was in prior to your occupancy.  This is usually a large unwanted cost to the tenant.  If this happens, hire an attorney to advise you further in this regard.

Commonly, if you got a loan or lease from the group than sold you your more valuable equipment when you first moved into your suite, you probably agreed in writing (but have since forgot) that the equipment seller or lender had a first lien on the equipment you acquired, which means that if the loan is not satisfied or the lessor retains control of the equipment, they probably forced you to have the landlord approve an agreement that says the landlord's right to your equipment is secondary to the lender/lessees right.  You should check on this.  You may not remember that you did this previously.  If this is the case, your landlord probably cannot cannot have the equipment even if you didn't get approval for your equipment improvements.  Check with your local legal counsel on this matter also.

Unless you asked for, and your landlord agreed IN WRITING to let you retain and remove certain of your alterations, improvments, and additions upon the termination of your lease; it is likely that your landlord will own and control ALL your equipment, HVAC, lighting, walls, carpet, etc.  You should be certain to check with your local Landlord/Tenant legal office or  Bar Association to be certain that this is the case.   Remember, there are likely specific provisions in your lease that address this matter in greater detail, so check further into the text of the lease or refer this question to an attorney.

Your 2nd question is a legal question that may be answered differently depending upon the laws in various jurisdictions.  I cannot give legal advice and I suggest you have an attorney answer this question for you.  My guess is that you would remain liable for all the obligations of the lease, although your mother would not be obligated.     

I hpe this isn't bad news for you.  Good luck with your lease.

-Jim