RE Basics: Considerations at Lease Expiration

It is always critical to review the terms of a lease to ascertain the rights and obligations of the landlord and tenant. This summary covers items of consideration for Minnesota landlords and tenants as lease expiration approaches.

Surrender Obligations

Physical Condition of Premises. A lease will generally specify the condition in which a premises must be surrendered at lease expiration. If the lease does not otherwise specify, Minnesota law has an implied covenant that the tenant will surrender the premises at the end of the term of the lease in as good condition as when the lease commenced—with reasonable wear and tear and damages from the elements excepted (Dehn v. S. Brand Coal & Oil Co., 63 N.W.2d 6 (Minn. 1954)).

Physical condition items that tend to be disputed, and hence warrant careful attention, include: roof; parking lot; telecommunications cabling; and environmental contamination, including of ductwork, walls, floors and ceilings.

Removal of Personal Property and Tenant Improvements. The terms of a lease typically outline the tenant's responsibilities to remove its personal property and improvements from the premises at the end of the term and to clean the premises. The lease may require a walk-through of the premises by the landlord and tenant prior to the end of the term, and the tenant may be obligated to remove improvements it has constructed in the premises. The lease may also require restoration of areas affected by removed improvements.

The lease almost always requires the tenant to remove its personal property from the premises at or before the expiration of the term of the lease.

Minnesota law provides that the landlord must store any personal property of the tenant left in the premises. The landlord may sell the personal property if 60 days have elapsed after the landlord's receipt of actual notice (or the reasonable appearance of) the tenant's abandonment of the premises and if the landlord has made reasonable efforts to notify the tenant of the sale (Minn. Stat. § 504B.271).

The landlord may be liable for punitive damages if the landlord holds any of the tenant's personal property and refuses to allow the tenant to retake possession of the personal property within 24 hours of the tenant's written demand (or 48 hours if the personal property is in storage) (Minn. Stat. § 504B.271). However, if the tenant has granted the landlord a properly perfected security interest in its personal property, the landlord need not wait to enforce its security interest.

Memorandum of Lease. If the landlord and tenant entered into a memorandum of lease that was recorded in the real estate records, the landlord should make sure that both the landlord and tenant execute and record a document terminating the memorandum of lease.

Tenant Holdover

Nature of Lease. Following expiration of the term of a lease, if the tenant holds over in the premises, and unless the lease provides otherwise, Minnesota law states that the lease converts into a lease for a period equal to the shortest interval between the times of payment of rent under the expired lease (which, in most instances, is monthly) (Minn. Stat. § 504B.141).

By its terms, the lease may provide that the tenant holding over in the premises without the landlord's consent does not have a month-to-month tenancy or an at-will tenancy, but a tenancy at sufferance, meaning the tenant's right to occupancy may be terminated at any time, rather than upon 30 days' prior notice as is required by a month-to-month tenancy or as is generally required by a tenancy at will (see Minn. Stat. §504B.135)).

Increased Rent. If the lease so provides, the landlord may raise the rent for any period of time that the tenant continues to occupy the premises following expiration of the term of the lease. Often, leases will state that during any holdover period the tenant must pay 150 percent to 200 percent of base rent due during the last rental period of the term. Sometimes, leases will also allow the landlord to collect 150 percent to 200 percent of operating expenses that the tenant would otherwise be obligated to pay.

Landlord's Damages. Often, a landlord will incur costs and expenses if the tenant does not vacate the premises at the end of the term. If the landlord has leased the premises to another tenant and is unable to perform under that lease because the current tenant has not vacated the premises, these damages might be significant. A lease may provide that a tenant will indemnify the landlord for any expenses or liabilities incurred by the landlord and caused by the tenant's failure to move out on time. A landlord may also sue a tenant to collect damages that the landlord suffers as a result of the tenant holding over in the premises.

Eviction. If the tenant refuses to vacate the premises following lease expiration, the landlord may repossess the premises by evicting the tenant in accordance with Minnesota law. An eviction action is designed to resolve the sole question of who is entitled to possession of the premises, and thus claims for damages must be made separately. Minnesota law does not permit the landlord to use "self-help" to dispossess the tenant (by, for instance, changing the locks) (Minn. Stat. § 504B.281).

A landlord may commence an eviction by filing a complaint with the court and serving a summons issued by the court to the tenant (Minn. Stat. § 504B.321). The court will then schedule a hearing in either district court or in a separate housing court (in the case of Hennepin and Ramsey Counties) within seven to 14 days after the issuance of the summons, unless there is a basis for expediting the hearing (Minn. Stat. § 504B.321).

If the landlord obtains an order of recovery at the court hearing, unless there is a reason why the tenant must vacate the premises immediately, the court may allow the tenant a reasonable time to vacate the premises, not to exceed seven days (Minn. Stat. § 504B.345). If the tenant does not comply with an order to vacate the premises, a county official must enforce the order (in Hennepin and Ramsey Counties, the county sheriff would do so) (Minn. Stat. § 504B.365).

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Further details are necessary for complete understanding of the subjects covered by this article. For that reason, the specific advice of legal counsel is recommended before acting on any matter discussed in these pages