Ann (the "Lessee") leases an office in Ted's (the "Lessor") building for a one year term. At the end of the period specified in the lease, the lease ends according to its terms, and possession of the office reverts to Ted. If Ann dies during the period of the lease, what happens to the leased property?
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At times, commercial landlords will include options in the lease to terminate the lease upon the death or disability of the tenant. In this case, the tenant would no longer be financially responsible for upholding the lease should the tenant die or become disabled. However, a landlord would not want to include such a clause for all tenants.
A death and disability clause is generally most beneficial to the landlord when the tenant is a small firm whose main owner is also the sole person who generates any income for the firm. In the event that the sole person who generates income is no longer able to do so, the landlord would find it more financially beneficial to terminate the lease and find a new lessee. It is generally beneficial for landlords to include death and disability clauses in leases for such small firms as those of attorneys, dentists, doctors, and other professional service providers.
Hence, in the above scenario, if Ted included a death and disability clause in the lease, then he could easily terminate the lease upon Amy's death and find a new lessee. It would have even been beneficial for Ted to have included such a clause because it sounds like Ann is a professional service provider of some sort who is the only person who generates revenue for her firm.
However, if landlords like Ted choose not to include death and disability clauses, then firms also have the option of taking out insurance policies that cover their lease and other overhead expenses in the event they are no longer able to uphold the lease due to death or disability. Finally, if the firm fails to insure lease coverage against death and disability, then the landlord has legal claim to the tenant's estate.
The simple answer to the question is that, if Ann is the sole lessee of the premises and dies before the end of the lease term, the premises revert to Ted, the Lessor. Part or all of the lease payment most likely derives from Ann's ongoing business activities within the premises, and once her activities stop, the lease payments will stop, which will be a default under the terms of the lease, allowing the Lessor to begin an action to repossess the premises. Her death or, rather, her absence from business, will also likely trigger a few other defaults under the lease--the duty to carry on business activities, maintenance of certain areas within the leased premises, maintaining permits and licenses relating to the business, and maintaining appropriate business insurance. The Lessor also has the right to protect his property, and if there is no one in the premises, his property is now at certain risk (perhaps the power and heat are not working), and he will take possession in order to maintain the property.
If, however, the lease contains either assignment or sublet provisions, and Ann has properly assigned her lease to another party or sublet the premises to another party--with the Lessor's consent--this party has the legal right to assume Ann's obligations under the lease. The lease terms would be changed to reflect that another party is now the Lessee, and all other lease terms would remain as they are in the original lease between Ann and Ted. In many cases, the original Lessee in an assignment or sublet situation may retain responsibility for some lease obligations, often as a guarantor for the new party, and in this case, Ann's death would be a breach of that obligation.
Ann's death does not relieve her of the rent obligation for the property. Unless the specific cause of breach is addressed in the original contract, the death is treated like a simple breach of contract. It may seem strange, but there are several reasons the property is maintained by Ann's estate.
First, there may be disbuted property in the office which requires storage and protection. Upon recepit of notice of death Ted is obligated to protect the property from theft or damage. As long as the estate continues to pay rent the lease is enforceable. As a practical matter the executor of Ann's estate is the responsible party to ensure payment is produced.
In addition to disputed property there may be accounts recievable which need to be recovered by the estate. For example, if Ann had an accounting service and clients still owed her money the estate may choose to keep the office open and staffed to facilitate the payments.
If the estate does not want to keep the property Ted is free to relist the property or convert it to his own use. However, the estate is still responsible for any lost rent as if Ann voluntarily vacated. Ted must also return any portion of the security deposit not used for normal wear and tear to the estate.
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