Small spaces leased by small landlords to small tenants are often handled with small leases. In many cases, a “small” lease means a “standard” (read that: purchased) lease form. Even where this is not the case, the provisions in many leases sprung out of such “standard” forms. That’s especially true when it comes to their “boilerplate.” [Boilerplate – thought to originate from certain type of printing plates that were intended to be permanent and unchangeable, such as for an advertisement to be printed in a newspaper “as-is.” They were on heavy metal plates that resembled the riveted metal plates that would house a boiler.]
But, what really is “boilerplate”? The word’s connotation is a provision that is ordinary, common, and by implication generally acceptable (and thus, as unchangeable as those advertising printing plates). In reality, there are very few, if any, such clauses in a form lease that deserve the dignity of being unchangeable.
Today, and from time to time as we grow old together, Ruminations will be examining some of these seemingly “hum drum” clauses that live in pre-printed lease forms. And that means we’ll be exploring lease provisions that are copied from (or, inspired by) those forms.
Though ordinary and common, “boilerplate” provisions are not necessarily generally acceptable – especially to a tenant. No bias was intended in preparing the Ruminations blog posting for today. It’s just that it is impossible to be entirely balanced as between a landlord’s concerns and a tenant’s concerns when it comes to the “boilerplate” in pre-printed forms. After all, pre-printed forms are designed for sale to landlords, not tenants.
We would be remiss not to point out that the most frequently encountered “boilerplate” provision in a lease (or in any other contract) is the “blank space” provision, those being the provisions that are ordinarily and commonly omitted in form documents. For example, most pre-printed form leases do not require a landlord to maintain the property, provide services or carry insurance. In effect, those “blanks” are “boilerplate” provisions – ordinary and common, but significant by their omission.
We’ll make no attempt to be comprehensive or to transfer a lifetime of leasing experience to the reader. After all, none of us has yet lived a lifetime. Instead, our approach will be a simple one. We’re going to make “fair use” of a selected provision from a popular New Jersey pre-printed lease form. Then, we’ll make comments, mostly about the underlying principles behind the provision. Hopefully, this will be somewhat refreshing because “boilerplate” provisions are so familiar to all of us that it is common to gloss over them. And, when we gloss over them, it is easy to lose sight about what they are really saying. Further, while there are many formulations of ordinary and common “boilerplate” clauses, each using different words, the underlying principles and issues are the same.
If we like how this turns out and we’re not attacked with more than a peck of rotten tomatoes, we’ll return to this format over the course of time.
Here is today’s seemingly “boilerplate” lease provision:
The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or of the electrical, gas, power conveyor, refrigeration, sprinkler, air-conditioning or heating systems, elevators or hoisting equipment; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct on the part of any other tenant or of the Landlord or the Landlord’s or this or any other Tenant’s agents, employees, guests, licensees, invitees, subtenants, assignees or successors; or attributable to any interference with, interruption of, or failure beyond the control of the Landlord, of any services to be furnished or supplied by the Landlord.
This is really a disguised insurance issue. Almost all of the contemplated perils and the damage that could be caused by those perils can be covered by adequate property insurance. The question, therefore, is: “Whose insurance policy should answer for the claim?” A lease is not a script for a moral play; it is an economic agreement. Sometimes it doesn’t make sense to allocate risk to the party at fault.
Broadly speaking, an insured’s property insurance is “no-fault” insurance. It is like an automobile collision policy. If your car is in an accident, your own carrier pays to repair the car. You get to argue value with your own carrier. You don’t need to show that the other driver was at fault. In the sample clause above, the same dynamics exist. For example, if a water pipe breaks and a tenant’s property is damaged, it doesn’t necessarily mean that the landlord is responsible. Sometimes, a pipe breaks. Sometimes a cigar is just a cigar. [Sigmund Freud may not actually have ever said that.] Given that a small tenant would be wise to carry property insurance of its own, there really isn’t any reason not to allocate the risk of loss to an insured tenant. So, when reviewing a clause such as the one above, it is wise to realize that its real effect is to require a tenant to look to its own insurance. This provision and a waiver of subrogation lease provision have the principal purpose of barring a tenant’s insurance carrier from seeking to collect from the landlord’s insurance carrier.
So, here’s our bottom line: We think tenants should bury the “but it’s your fault” mantra and accept the concept of this particular clause. And, not just for philosophical reasons.
Suppose that pipe breaks and the water damages your inventory and fixtures. You can put a claim in with your insurance company and avoid a fight over whether the landlord was at fault or you can fight with the landlord and its insurance company over whether the pipe just “broke” or one of your employees had been using it as a chinning bar. Even assuming that you win the “landlord was a bad guy and owes me” battle, all you’ve done is gotten to the second stage: “How much will you pay me?” If you insure your own property for “replacement value,” you get your fixtures back. If you think your negligent landlord owes you any more than the depreciated value of your fixtures, you might be disappointed. Your own insurance company will pay you full value for last season’s goods – the landlord might not be so liable. And, you have a better shot at negotiating with your own insurance carrier (possibly with the greater bargaining power of your broker), than you do with your landlord’s carrier.
“But,” you ask, “what if I chose not to carry insurance?” We think that’s your economic decision to pay less over time in the form of covering what would have been insurable losses than in premiums. Factor this “release from liability” provision into your cost analysis.
That having been said, there is no corresponding logic to shift the risk of personal injury to a tenant for its landlord’s acts. Also, the sample clause would excuse the landlord from almost any liability with respect to interruptions in utility services or services provided by the landlord. The lease form from which this sample clause came does not obligate the landlord to provide services in the first place. Consequently, in this form of lease, there are no “services to be furnished or supplied by Landlord.” So, at the end of the day, the landlord might never have any liability. Generally speaking, a lease should spell out the services that a landlord must furnish. Those could be: vertical transportation; trash removal; HVAC; common area lights; and the like. As a general principle, the risk of loss for a failure to perform such an obligation should be borne by the party who was obligated to furnish the service UNLESS commonly carried insurance coverage would shift the real burden to a party’s insurance carrier without any truly adverse change in that party’s costs or insurability.
As to interruptions to utility services, in most cases such services are delivered to a tenant directly by the utility provider. As a consequence, a landlord can cause damage in basically only two ways – it can cause the interruption or it can delay restoration of the utility service. A common way to address this issue is to abate rent for interruptions lasting beyond a certain period, such as for more than 24 or 48 hours if the landlord caused the interruption or interfered with restoration of the service.
Yes. Today’s blog posting is short (at least under Ruminations’ standards). If you feel cheated, just average it out with last week’s posting, or take two aspirins and call us in the morning.