What Should a Lease Say About Repairs and Maintenance?

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This isn’t going to be a “head” piece. This is about the nuts and bolts of repair and maintenance obligations in a lease and is intended for those who make the deals and those who craft the documents. It is only a “teaser” to get all of us thinking about whether our lease forms really have it “right.” It isn’t an encyclopedic piece. If things go well, it won’t be very lengthy.

Here’s a very simple, but incredibly helpful concept. When it comes to repair, maintenance, and replacement obligations, ask yourself two questions: “Who does the work” and “Who pays”? The two answers really aren’t related. Here’s an example. After you read it, think about your lease form and ask if “you got it right.” If a tenant’s truck damages the building’s wall by smashing into it, obviously the tenant should pay for the repair. Based on our reading hundreds and hundreds of lease forms. It seems most common that the tenant should do the repairs. But, in the usual case, that doesn’t make sense. After all, it is the landlord’s building and the landlord is the one who should control the timing, quality, and completeness of the repair. So, why do most leases say that the landlord is responsible for repairing exterior walls unless the damages was caused by the tenant’s negligence, etc., in which case the tenant does the repair? To make it clear, Ruminations clearly and strongly asserts that the two questions, “Who does it” and “Who pays” don’t require the same answer. The considerations are very different, even if in many situations the responsibilities parallel each other.

This horse isn’t dead. Sometimes a lease’s text isn’t written in a direct way. Think about the lease that lists specific repair items for which the landlord is responsible, ending with the carve-out, “unless the damage was caused by Tenant.” In a common approach, that same lease goes on to say: “and Tenant shall be responsible for everything that Landlord is not responsible for.” There we go again, the Tenant is going to repair “big things” that belong to the landlord and about which the landlord has much greater concern.

In the ordinary lease situation, a landlord will take responsibility for a building’s structural elements and the business deal will determine if its tenant will pick up any part of the landlord’s cost to meet that responsibility. But, exactly what are the structural elements of a building? We’re sure many readers know the answer. We’re pretty sure our readers are wrong and we’re certain that those who aren’t “wrong” don’t have all have the same answer. Of course the foundation is a structural element as are pile caps. Load bearing walls are as well, and that’s also not very controversial. What about non-load bearing walls that may separate two demised premises. After all, not all block walls hold the building up. What does your lease form say about them? Is the floor slab a structural element or does it just cover the dirt underneath? Truth be told, it isn’t structural unless it actually provides “strength” or support to the building. So, why not tell the parties (and a court if a dispute can’t be resolved) what you mean by structural? Explain the word “structural” by explaining that you mean foundations, pile caps, floor slabs, exterior walls, interior load bearing walls, columns, beams, struts, ties, plates, joists, trusses, and items of similar character. Ask your architect or engineer to help you with the definition and then add what you meant to include “on top of what is technically structural.”

Common walls separating leased premises from the others or from common areas, load bearing or not, are almost always a landlord’s primary responsibility (to do and to pay). Why not say so? Say that floor coverings and painted or otherwise decorated surfaces within leased premises are tenant’s responsibility (to do and to pay).

Roofs should be the landlord’s responsibility to repair even if the tenant causes the damage, but the lease needs to say who pays for ordinary work. As to the trilogy of maintain, repair, and replace, the agreement as to cost recovery for each type of work need not be bound into a package. Most often, the tenant will agree to directly or indirectly pay for roof maintenance and repairs, but the cost for replacements doesn’t always follow. Tenants don’t always pay for roof replacement and when they do, it isn’t always “all in one billing period.” Most readers already know this about roofs, but do you know what is meant by “roof”?

Are you only thinking about the roof covering, its outer skin, often being a membrane? Or, have you considered the decking or sheathing, the flashings or the gravel or the roof deck or the vapor retarder or the underlayment or the insulation or the joists (or are they structural elements)? Insulation, you say? Do roofs really have insulation? Why don’t I see it? That’s because it is sandwiched between the roof’s skin and the (often corrugated) roof deck. Maybe this isn’t important in your lease because the issue never comes up. Until it does.

This posting would be very long if it tried to be a treatise about “what’s in and what’s out.” And, it would be even longer if it crossed over into what should or should not go into Common Area Maintenance (or Operating) Expenses. Ruminations isn’t falling into that trap this week. This time, our simple goal is to get all of us to re-examine our form leases and look at the “fly over” provisions – the ones we think we know “cold,” but really haven’t thought about. This isn’t a checklist, just a tantalizing sampler. If you have anything to add, by way of example or by way of challenge, please go to the top of this posting and add your two cents.

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Comments

  1. I’d like to discuss the interplay between typical maintenance paragraph you quoted, which requires the tenant to pay for damage caused by its own negligence, and the waiver of claims provision, which provides that the parties will not pursue each other for property damage covered by their property insurance policies. If I am representing the tenant, I always try to get the “unless caused by Tenant’s negligence” clause deleted from the maintenance provision with the argument that waiver of claims provision means the parties do not really intend the tenant to pay for damage to the premises caused by its own negligence, just as the parties do not intend the landlord to be responsible for damage to the tenant’s property caused by the landlord’s negligence (e.g. failure to properly maintain the roof). This argument more often than not meets fierce opposition, mostly of the nature that it is outrageous for the tenant to cause damage to the landlord’s property and not be responsible for it. But I have never heard a good explanation of why this does not run afoul of the waiver of claims provision.

    • You raise a good issue. On a techincal note, it isn’t my conclusion that there is a conflict between the two provisions because assigning the payment for repairs responsibility to the tenant (in the case of your example) is not the same as saying that the landlord has a monetary claim against the tenant for destroying the landlord’s property. To the extent that it could be read that way (and I grant that such a reading is a reasonable one), the general rule of contract construction would give precedence to the “specific,” i.e., Tenant pays to fix what it breaks, over the “general,” neither has a claim against the other if the potential claimant’s (insured or insuarble) property is damaged by the potentially liable party.

      On a substantive basis, I think your point is dead on right. The purpose of insurance is to pay for stuff that is damaged other than as the result of a deliberate intent to damage the property. Even though a landlord has bought property insurance coverage, the premium is being paid by the tenants, either directly (by way of CAM or insurance payment obligations, whether from dollar one or under an escaltion clause) or indirectly (in that the rent pays for all of the expenses to run the property). As such, the insurance is for the tenant’s benefit and if the tenant negligently damages something, it should have the benefit of landlord’s insurance which it, the tenant, has paid for. Leases often cover this and there is case law to the same effect. That’s why many crafters of leases scoff at form leases that say the tenant will pay for burning the building down if the fire was caused by the tenant’s negligence.

      Though out of context, here is a typical lease provision: “Tenant shall pay the costs to repair, restore or rebuild any element of the Project damaged by reason of Tenant’s negligent act or omission (where there was a duty to act) but only to the extent such costs exceed the sum of Landlord’s insurance proceeds (or what insurance proceeds would have been had Landlord carried the insurance required by the provisions of this Lease) and the applicable insurance deductibles where such repairs, restoration or replacement is covered (or would have been covered) by such insurance.”

  2. Alan Betus says:

    The waiver of subrogation issue aside, in the example where Tenant’s truck damages the building, I wonder if the Landlord’s intention is that Landlord make the repairs at Tenant’s cost? I also wonder if what really happens (i.e., who actually ends up making the repairs, and what does hapen when you actualy apply the waiver of subrogation language) differs from the actual lease language? In those cases, what we have is either poor drafting, or (probably more likely) the drafter not thinking critically enough about the two questions you raise — “who does the work” and “who pays”?

    On that note, this post is a perfect example of why I love Ruminations. You have caused me to think about what on its face is a routine concept and “standard” language it in a completely new light. Great job, Ira.

  3. Michael Brennan says:

    A real world example:

    Even where :the Lease places responsibility for roof repairs on the Landlord, the responsibility is often limited if repairs are “caused by Tenant”. Invariably in the case of roof leaks, Landlords point out that the rooftop HVAC units are maintained by contractors known to wear golf cleats. So the Landlord responds to the repair demand by arguing the leaks were caused by the Tenant, and does nothing.

    Unfortunately (for the Tenant) the roof remains pourous during the ensuing letter writing campaign, and the inconvenience of the leaks eviscerates the Tenant’s negotiating leverage. Tenant attorneys should always be sure that where the Landlord is responsible for repairs, it is ALL repairs, even if the Tenant is responsible for the cost of repairs necessitated by Tenant’s negligence or willful misconduct. That way, the roof is promptly fixed, and the ensuing litigation can focus not on the duty to perform the repairs nor the breach in not doing so, but on causation and damages.

    My other repair/maintenance issue is that tenants should be only be responsible, at its own cost, for maintaining and repairing utility lines located within and exclusively serving the Premises. The maintenance and repair of shared lines, or those located outside of the Premises should be a Landlord responsibility, although in most cases the cost would be passed along as part of CAM. (I guess that’s another topic!)

  4. Albeit my focus is in office leasing, I am under the impression retail leases have the same “management fee” cost component within the Operating Costs a Landlord is able to charge back. That said, any Landlord that likes easy money would ensure it is responsible for all components relating to repairs and maintenance of its building. Set up the communication stream so the tenant can contact the contractor (pre-approved by Landlord) directly to make the repair or schedule the maintenance. If the tenant argues that his operating costs are high (wrt repairs and maintenance) then ensure the contractors keep detailed records of all service calls which allows the Landlord to argue the Tenant enabled it by the frequent calls. On the same side of the coin, the more a Tenant has to contend with noncore business issues, the less it has to focus on its actual business~in essence could hurt both parties in the long run.

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