Five Things to Remember When Exiting a Site
Published on Monday, 30 December 2013 07:13:24 Written by Marc
If you have been managing real estate leases for some time, you have probably already experienced this a few times: Your lease is ending in a few weeks (or months) and you slowly prepare to exit the site, either to close down your operations or to relocate them elsewhere. Then, as the exit day gets closer, you start to ramp up your tasks, only to find yourself scrambling one week before exit day to try and complete everything in order to avoid paying extra fees (or an extra month of rent) to your landlord. I often asked myself why this scenario seems to repeat itself. I guess it is human nature to delay things until they become urgent (also makes me remember of some university years where we waited until two days to deadline to start to work on some papers). Of course, in some occasions although you can plan, it is simply not possible to start any exit work in advance. For example, if your operations need to continue until the exit day or very close to it, there is little work you will be able to do in advance. The best you can do is planning everything on paper and when you have the green light to exit, you move ahead as fast as possible. Nevertheless, regardless if you plan your exit and manage to stick to your initial schedule or decide to wait at the last minute, the things you will need to do are the same. Let us examine the main items to remember (and plan for) when exiting a site.
- Overall timeline. This is probably the most important one, since it drives all the rest. Knowing your timeline for the major elements such as when you can stop your operations, when you can physically remove your equipment/furniture/other, when you need to move physically people, and when you need to give back the keys to your landlord and all-important elements in your overall timeline. If for whatever reason you realize that you will not be able to give back the keys to your landlord on the day that your lease officially ends, you should go and have a talk with your landlord as soon as possible in order to let him/her know and see what kind of arrangement you can make. Many leases include a 100% or 150% withholding fee for occupying a sit past the end of lease day. For example, if your lease ends on December 31st but for some reason (such as holidays) you can only move out on January the 3rd, your landlord might charge you 150% of your normal monthly rent, even if you occupy the site for 2 or 3 days. If you think, you will have a similar situation, better to sit down with your landlord well in advance and negotiate something. If your withholding period is to give you time to clean up the site, many landlords will forgive the rent for that period, since after all, you are cleaning/improving his/her site. However, it is not something automatic and I know of some landlord that will insist on a full month of rent if a tenant withholds a site even for one extra day. However, when negotiated well in advance, many landlords will accept some kind of proposal such as a pro-rated rent. So for example, if you keep the site 10 days longer than your lease allows you to, you could propose to pay one third of the monthly rent. The key word here is negotiating in advance, before you find yourself on the day your lease is ending.
- Restoration clauses. I touched on this in a previous blog Plan Your Restorations in Advance a while ago. Restorations clauses can include a variety of things, ranging from removing anything you may have installed during your lease to putting back things you may have removed when you took the lease. Some restoration clauses allow the landlord to decide what he/she wants you to restore, keep, or remove from the site. The best is to read the restorations clauses in your lease very carefully then make a checklist on what you think your restorations obligations are and then sit down with your landlord to go over that list. I mention that your checklist should be what you “think” your obligations are because your landlord might allow you to leave some items that, although your lease can force you to remove them, they may add some value to the building and hence your landlord may accept that you leave them in place. This could save you some money, especially in the case of equipment which has little residual or market value and for which disposal fees can cost a significant amount. This could be for example a garbage compactor that you installed 10 years ago in a warehouse or industrial site. You might have no need for it and its market value of recycled metal might not even equate the cost of removing and disposing of it, but your landlord could accept that you leave it in place since it might be used for a future tenant. The same applies for data cabling. If your lease calls for the removing of all data cabling (something I always try to remove from the restoration list when negotiation a lease), you might be more than happy if your landlord accepts that you leave it in place. There is no market value for this and the cost of removal can be significant.
- Equipment for disposal. When you know that some of your equipment will be up for disposal, either because you have no more need for it or because the equipment has reached its lifespan and that you need to remove it from the site, you will need to plan for disposal. This can include any equipment or furniture in your site. Many times, if you have occupied a site for a number of years you notice that the furniture is old and cannot be used at another site. You will need to plan to dispose of it. Sometimes you can manage to sell furniture for a few dollars, which helps cover the cost of removal, or you can donate it to some organizations. In the latter case, they will often come and pick up the furniture, so at least you save the cost of disposal. For equipment, it varies a lot, depending on the type of equipment. At times, it makes sense to try to sell the equipment on a secondary market or offer it to other business units within the company (for large companies with multiple business units). Another possibility is to offer it to the landlord for a small price. Depending on the type of equipment, sometimes even giving it to the landlord will be cheaper than paying to dispose of it. One other idea is to try and see if the site you are vacating has found a new tenant and try and see if that new tenant has an interest in purchasing your unwanted equipment/furniture.
- Close the lease. When you exit, make sure you have closure on your lease. This includes getting a sign-off from your landlord that all required restorations have been complete to his/her satisfaction so that the landlord will not come back to you later on. Also, get back any security deposit you might have provided when you signed the lease. This may be in the form of a deposit in an interest bearing account, a letter of credit, a month of rent pre-paid. Whatever form you provided as a security to the landlord you will need to take it back.
- Change of address. This item is normally included in the list of things to do when you move, but it is also important here. Make sure you provided your new address to all those that need to reach you. Utilities, phone, data. You might need to contact your telephone company, internet provider, and utilities provider depending on your lease structure, what you were paying to the landlord, and what you were paying directly. You will need to contact them to let them know that you are moving and that you will no longer continue to pay for the services at the current address. This is something to plan for, as some companies require a notice of 30 to 90 days prior to closing an account or change of address. Since this varies greatly from place to place, best is to contact them well in advance to see what their policies are. Worse thing to do is to wait until the last day that you occupy your site and inform your phone company that you are exiting the site. They might charge you one or two months or extra fees for nothing (yes, I speak from personal experience. Do not wait). In addition, depending on who was paying the taxes (water, municipal, waste, other) you will want to notify them as well. Bottom line, planning for things to remember when exiting a site is essential to having a smooth exit from the site you lease when your lease ends. Plan a few months ahead to see if there are critical elements that you should address in advance, such as negotiating with your landlord about the need to remain at the site longer than your lease term. Over time, you can develop a complete checklist of things to remember and develop a hassle free process for exiting from any site you lease.
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