What Is A Structural Component? Do You Know?

Print
Print Friendly

Ruminations took a crack at answering this question a whole lot of blog postings ago, but we never felt fully comfortable with the way we tried to fashion an answer. Basically, we tried the “ejusdem generis” approach. [What are you talking about – you behind the keyboard? Our definition used a list of items followed by, “and thing like that.” That’s the essence of the “ejusdem generis” approach.]

Here’s a spoiler. Ruminations isn’t going to do much better today. If you make it to the end of this posting, you’ll also have figured that out.

The issue of what is “structural” surfaced in a December, 2013 7th Circuit United States Court of Appeals decision. The case is Aeroground Inc. v Centerpoint Properties Trust and the court’s decision can be read by clicking HERE. What happened was that a tenant’s heavy cargo handling forklift trucks “did a number” on the concrete slab floors of its leased warehouse. Think: $1,000,000.

The lease said that the tenant had to repair the warehouse floor, and that the landlord had to repair the foundation. The problem was that the concrete slab at the bottom of the warehouse space served both as a floor and as the building’s foundation. For those who yearn to know if the butler did it, we’ll satisfy your curiosity. The tenant was held responsible because the damage was found to be on the surface and that meant the damage was the slab’s function as a floor, not to its function as the building’s foundation. Presumably, had the expected use of heavy forklifts caused internal damage to the floors, meaning had there been damage to that part of the floor that provided the building with a foundation, the result would have been different.

To Ruminations, however, this seemingly logical, court-determined result is somewhat unsatisfying. Perhaps this would never had gone before the black-robed ones had the lease defined “floor” or “foundation.”

To get all of us on the same page, let’s understand what gives a court the right to reach outside of a lease to resolve disputes like this. A key reason, and the one in this instance, is an “ambiguity” – the lease was capable of more than one meaning and there was a need to decide which meaning was the winner. Because the lease defined neither “floor” nor “foundation,” the court reached for what sometimes seems like a court’s best friend – a “lifeline” in game show parlance – good old Merriam-Webster. Messrs. Merriam and Webster said that “foundation” means “an underlying base or support; especially the whole masonry substructure of a building.” [How many readers would have thought of a floor as “support” in that context?] The erstwhile lifeline friend (after all, this was a “million dollar” problem) also supplied the following answer: a “floor” is the “level base of a room; the part of the room on which you stand.”

So what was the concrete slab at the “bottom” of the warehouse space? According to the lower court, and with agreement from the appeals court, the concrete slab had a “dual nature as both floor and foundation. … It functioned as a floor because ‘[t]he slab [was] the surface upon which [the tenant’s] operations [were] conducted, including the movement of cargo loads.’” But, each court further agreed that “the slab also ha[d] a structural function: by connection to the building walls through dowel rods, it bears loads transferred from the walls.”

That’s all Ruminations wants to say about the Areoground case other than to recommend it to those readers who are curious about how parties are able to re-purpose a number of lease provisions in an effort to make or bolster their own position.

From time-to-time, we like to point out a “take-away” to be “taken-away.” Here’s a simple one. If you are going to write a lease, you’ve got to understand how a building works, not just the floor/foundation duality, but things like HVAC, roof construction, “and the like.”

Telling a story about heavy forklifts and damaged floors doesn’t really get us much closer to answering the title’s question, “What Is A Structural Component?”

In that regard, on May 9, the Internal Revenue Service published its own answer, though not in as popular a blog as this one. [By “popular,” we don’t mean Ruminations has a lot of fans: only that it is written for ordinary folks who have windows in their offices, unlike tax law fanatics.] The IRS’s proposed Regulation won’t be very helpful, other than to further illustrate the problem and the risk of not including your own definitions in a lease.

We’re going to slice and dice the IRS’s answer below. So, if you want to see the Proposed Regulation that serves as the foundation for the rest of today’s posting, click HERE, then go to PART I- INCOME TAXES. Though the Proposed Regulation deals with the definition of “Real Estate Investment Trust Real Property,” you don’t need to know anything at all about “REITs” to get the benefit of some pretty thorough thinking.

Let’s begin with a GIANT, GIANT warning. What follows will not translate well into a lease that wants to deal with “structural components.” That means you won’t be able to use the IRS definitions in your leases. Ruminations continues today, but only for the purpose of illustrating the problem lease crafters and negotiators face when allocating maintenance, repair, and replacement responsibilities for parts of a building.

To understand what might be considered a structural component according to the IRS, you’ve got to understand what constitutes a “structure” (but only ones that are in the nature of real property). As a shortcut, the IRS confirms that a building is a structure. That’s no surprise, nor is it a surprise that a building is real property. For most readers, that’s all one needs to know before moving on to what the IRS suggests is a “structural component.”

For the more curious, according to the IRS, the category of real property also includes “other inherently permanent structures.” And, MORE IMPORTANTLY as a concept, it includes only those that serve a “passive” function. A structure serves a “passive” function when it contains, supports, shelters, cover or protects, not when it serves to manufacture, create, produce, convert or transport. The latter list describes “active” functions.

With those explanations of (real property) “structure” and “passive function” in mind, we can now drill down to what the Proposed Regulation defines (for REIT purposes) as a “structural component.” If you treasure consistency in a single blog posting, you may want to sign off now.

First, the IRS ties in a “structural component” to the “of what” part: foundationally (a dual-use term as used in today’s blog posting), a structural component has to be a “constituent part of and integrated into an inherently permanent structure, [and] serve[] the inherently permanent structure in its passive function… .”

Probably knowing that tax preparers are not theoreticians, the IRS gives some examples. Keep in mind, to the IRS, the listed items are not structural components unless they are a “constituent part of and integrated into an inherently permanent structure, [and] serve[] the inherently permanent structure in its passive function… .” For example, among many other things, the listed items, while still in their boxes, are not structural components. Here is the IRS’s list: “wiring; plumbing systems; central heating and air conditioning systems; elevators or escalators; walls; floors; ceilings; permanent coverings of walls, floors, and ceilings; windows; doors; insulation; chimneys; fire suppression systems, such as sprinkler systems and fire alarms; fire escapes; central refrigeration systems; integrated security systems; and humidity control systems.”

If you stopped reading before you got to this point, you won’t even know that we’re writing this paragraph. If, as must be the case, you have reached this far, it’s time to explain why we have even looked at this Proposed Regulation. The reason is simple, it purports to define a building’s “structural components.” And, it does so in much greater detail, and with a great deal more of analysis, than do Messrs. Merriam and Webster. [For the IRS’s analysis, you may want to click the link we’ve furnished way, way above.] You see, for the IRS’s REIT regulation purposes, structural components include a lot of stuff that lease-people would never, ever consider. Be forewarned, however, most judges have ascended to the bench by way of tort or other litigation practices, and are like to rely on easily understood lists when it comes to real property matters. Also, litigants are known to throw everything against the wall to see what sticks, in this case things like wiring, doors, windows, and HVAC, just like the IRS “says.” Are those items what “we all” think are structural components? As Pete the Cat says, “Goodness no.” Ridiculous, you think? How about floors? Who you gonna believe: Merriam-Webster, or the United States Government’s Internal Revenue Service?

What was that take-away from earlier? Answer: “If you are going to write a lease, you’ve got to understand how a building works, not just the floor/foundation duality, but things like HVAC, roof construction, ‘and the like.’”

If you thought we got any smarter since when we last tackled the “What is a structural component” question, you’re wrong. But, we’re working on it. If any reader wants to help by suggesting something other than a list and the “ejusdem generis” approach, please share your thoughts by adding your comment below.

Print

Comments

  1. Thank you for your article on the difficulty of defining the meaning of the word “structural” when coupled with certain other words like “component”, “element”, “part”, “portion”, etc. i was somewhat surprised that you did not mention the principal context which has felled forests of trees to produce the paper with which wars have been fought over the meaning of the term “structural defect”.

    Almost all, if not all, states have their own version of a Condominium Act. For example, VA Code Section 55-79.79B provides, in pertinent part:

    Notwithstanding anything in this section to the contrary, the declarant shall warrant or guarantee, against structural defects, each of the units for two years from the date each is conveyed, and all of the common elements for two years….

    For the purposes of this subsection, structural defects shall be those defects in components constituting any unit or common element which

    reduce the stability or safety of the structure below accepted standards or

    restrict the normal intended use of all or part of the structure and which require repair, renovation, restoration, or replacement. (The format of the Code Section has been expanded to facilitate analysis.)

    Identifying which parts of a condominium are “structural components” covered by the developer’s warranty is hotly disputed in virtually every warranty case filed against a developer.

  2. floridalegal says:

    When dealing with a lease for a distribution center/warehouse building, there are also some differences based on the construction of the walls. The options are, tilt-wall, block, metal, and metal but with a block/concrete wains-coat that is approximately 4-5 feet high. The wains-coat wall is to address the forks of a forklift piercing the walls of the warehouse.. The type of wall can be deemed structural.

    Attorneys, at times, need to have a full understanding of the use of the building to address all of the potential issues with the use of the building over time.

  3. How about this: The structural elements of a building are those fundamental components that if damaged or removed would lead to the instability or collapse of the building or specified element. Or, to take the positive way of expressing it, those components of a building that are integral to its ability to remain whole and stable. For example, the slab, walls and certain elements of the roof of a concrete tilt-up building are structural. Mechanical and electrical systems are not structural, although they may be integral and necessary to the operation of the building.

    The components of different types of buildings will have slightly different definitions – rather than slab and walls a stick-built building might define framing, the perimeter foundation and piers as structural.

    I believe that to be rigorous, all buildings will refer to the foundation, interior elements of walls, and parts of the roof as the structural elements, and unless a component meets the above definition it should not be characterized as structural.

    The concept of structural can be extended/bent to such elements as the structural portion of a roof (as opposed to the membrane or surface) or the structural portion of a parking lot (as opposed to the slurry seal).

    • That’s certainly a definitional approach. Why would a tilt-up concrete wall be a structural element if the building would stand without it? Wouldn’t it leave the building no less vulnerable than would removal of the roof membrane or would the definition make the roof membrane a structural element? How would one treat the floor slab under the circumstances of the Aeroground decision? Would anyone suggest that some building components would be defined as “structural” only when the need to do something about them was passively caused as contrasted with being caused by a person’s actual use? That would seem to shift the issue of proof, such as was the building element used as intended or overburdened. That wasn’t spelled out in the Aeroground decision. Clearly, the damage was not only to the surface of the floor slab there.

      • That’s certainly a definitional approach. Why would a tilt-up concrete wall be a structural element if the building would stand without it?
        -A concrete tilt-up building would not stand without its walls.They are integral and necessary for the building to be a whole.

        Wouldn’t it leave the building no less vulnerable than would removal of the roof membrane or would the definition make the roof membrane a structural element?
        -The roof membrane is not necessary to the ability of the building to stand, although the underlying elements are, as they tie the walls together. Picture a cardboard box with the top missing. It stands but is not laterally stable. Picture the box with a top, and then add a film of saran wrap to be equivalent to the membrane. There may be other types of buildings where no part of the roof is structural (although I can’t think of any offhand) so any concerns with the roof/building in those cases would need to be addressed with different terms and conditions.

        How would one treat the floor slab under the circumstances of the Aeroground decision?
        -In a tilt-up building the slab is structural. If operations are being carried out on the slab the slab and floor are one and the same. That would be typical for the vast majority of warehouse operations. If a structure were built over the slab, e.g. to create an underfloor plenum, as is the case in some buildings where there is an after-construction need for extensive plumbing distribution or for under-floor HVAC distribution, the built structure would be the floor, not structural, and different from the slab.

        Would anyone suggest that some building components would be defined as “structural” only when the need to do something about them was passively caused as contrasted with being caused by a person’s actual use?
        -Primarily for the purpose of clearly allocating responsibility for maintenance and repair. I think the logic behind that is probably that “structural” elements are difficult to evaluate and responsibility for any defects in them are most properly allocated to the party with greater knowledge, the landlord or developer. Also, that party would be the one with any warranties that might still exist from the builder. I have seen absolute NNN leases where all elements of the building are the tenant’s responsibility. Those are typically for whole building users and for long lease terms.

        That would seem to shift the issue of proof, such as was the building element used as intended or overburdened. That wasn’t spelled out in the Aeroground decision. Clearly, the damage was not only to the surface of the floor slab there.
        -Use as intended would be different than the definition of the component. If there were concerns then that could be partially addressed with a detailed use provision in the lease, and if there were specific concerns with a particular use by the occupant then by any amount of language addressing the use, inspections, responsibility for damage, etc.

  4. Ira Grossman says:

    I didn’t see any serious description of what is the meaning that the slab served as a foundation. … .

    A foundation in a single story building, which I assume this is, is the part of the building that receives the vertical loads of the roof and the walls and transmits them to the soil. Prior to designing the structural system soil borings are tested to determine at what depth the soil will be strong enough to carry the vertical loads, the soil “bearing capacity” in pounds per square foot. The vertical loads are calculated by the engineer and the foundations are designed accordingly These are called footings.

    There are generally two types of footings. Each interior columns has its own.Exterior footings run under the exterior walls. Both these footings are installed at the depth where the correct bearing capacity was identified.

    Tilt up exterior wall construction is generally done by installing the perimeter wall footings and then pouring the interior slab. The panels are poured on the slab and then lifted up into place. Both the panes and floor have metal plates in them welded to secure the panels in place

    There is no way that a slab will be a structural component of the building. However, every slab has a bearing capacity independent of the building structure. The capacity is a function the slab’s thickness. The tenant was in the business of air freight and I’m guessing this was not their first facility. They should have asked about the floor thickness and if they did then they were really at faults. A six inch floor is clearly under designed for the intended use. I wasn’t clear if there was an actual discussion about the forklifts. Should the landlord have asked?

    Frankly, with13 years in the property management construction field and 15 years as an architect doing build-to-suit and spec industrial buildings, I would have known to ask.

    I think the judges’ decision was correct.

    • You are dead on and proving the point. People are writing leases without understanding the physical nature of a building. If you showed them a piece of a building and asked if they expected the landlord or the tenant to be responsible for that “thing,” they could answer you, but they couldn’t correctly describe all of those things as “structural” or “non-structural,” yet they use those categories as if there was universal agreement.

      And, if the damage to the floor in Areoground was what the Judge implied, then the Judge certainly was right.

      How many times does a lease draftsperson call an architect or engineer to “ask the question? I’d venture that it is a rare occurance.

      • There used to be a time when there were full service property management companies with management, leasing, construction and engineering all under one roof. I worked for one. To make it even better it was a division of a real estate investment advisory firm. It was a national firm with about 50 million sf under management. Senior property management was very hands on, visiting every property annually. I spent most of my time in environmental management and everyone in the PM division has my phone number. Leasing and PM were often in the same office. Communications were very tight, even though this was long before the internet.

  5. A construction manager for a large national chain client once responded to this question as follows; “the word “structural” refers any component whose function is to support a building against the force of gravity – i.e. up and down.” I assume this could also include seismic components whose function is to work against side-to-side motion as in an earthquake. In the court case cited, I suppose the judge made that very distinction – does the floor support the building from falling down or sinking or is it just the portion thereof whose purpose is to support people standing on it. An over-simplification I’m sure in Mr. Grossman’s judgment. … .

  6. This is the way I deal with it; “the Tenant is not responsible for making any load-bearing structural repairs affecting the structural integrity of the building”

  7. There are two kinds of floor slabs. A concrete slab-on-grade bears directly on the soil. It is not structural.

    A concrete second and higher floor can be designed as a structural floor.

    Concrete has a compressive strength that is measured in pounds per square inch or psi. With regard to the case at hand, if the “gynourmous” fork lifts had metal wheels, (which is much more likely with a high capacity lift )the weight per wheel, which would be a tiny area, together with the load the fork lift was carrying, could exceed the compressive strength of the concrete floor. In addition, fork lift trucks are notorious for creating shear stresses on the floor from their forward and back and turning maneuvering.

    One more reason why the lack of focus of both parties resulted in floor problems.

  8. Henry Pharr III says:

    “When is a floor not floor”. That is the question. Great article Ira and fantastic follow up comments as well. This issue also comes up again and again in my practice. Absolutely agree that understanding and specifically defining the structural portion of a prmeises is key to avoiding this dilemma. This is also where clients get cranky with us as attorneys for over lawyering a lease. In my experience though, spotting these issues and taking the time to define terms is worth the time, $$ and consternation of the parties involved.

    Oh, and did I forget to mention “exhaust hoods and associated appurtenances”?

    Thanks for posting this!

Leave a Reply