Wear And Tear: Easier Said Than Understood

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There are lots of comfortable phrases and concepts we all use without ever thinking about what they really mean or how they play out. One example is the well-worn formulation: “ordinary wear and tear excepted.” We see it all the time. Everyone writes it into their leases (and often into property acquisition contracts). To be sure, there are variations. One example is: “wear and tear, damage by fire or damage from any other cause covered by … insurance excepted.” Another is: “fair wear and tear and … excepted.” Regardless of how many words are used with any of these approaches, they all rely on the meaning of “wear and tear.”

Let’s start by trying to define “wear and tear.” Certainly, there are many perfectly fine ways to do so (and certainly there are “contorted” ways to do so if you don’t like the “result” of using a proper definition). Today, we’ll lift one from a 1969 [“time-honored”] decision from a California court:

The exception of ordinary wear and tear contemplates that deterioration will occur by reason of time and use despite ordinary care for its preservation.

The most common place we see an exception for “wear and tear” is in a lease’s surrender provision. What condition must the leased space be in when “returned” to the landlord? What does a tenant have to repair or restore that it didn’t have to repair or restore during the course of its tenancy?

One would think that a tenant’s obligations to repair and restore the leased premises during the term of its lease are unrelated to the condition in which the space needs to be when the lease is over. That would be wrong. The two sets of rules, its ongoing obligations and the re-delivery obligations are inter-related. Here’s a simple example, one that is unrelated to “wear and tear.” Imagine that a tenant moves into brand new space with brand new HVAC equipment. Its lease places the responsibility for HVAC repairs and maintenance, on the landlord. The lease is silent about replacing the HVAC. It also requires the tenant to return the space to the landlord in the same condition as when it moved in. At the end of the lease’s term, the HVAC is “broken.” Does the tenant have to replace the HVAC system? What do you think?

Of all the legal material available to aid those who write and interpret leases and labor in the vineyards of leasing justice, one treatise stands above all the rest. It is commonly known as Friedman on Leases. Here’s a link to information about this leasing law bible: Friedman on Leases.

Having given the source (Friedman) for the following, we feel comfortable in repeating something written there. That’s the following:

When a repair clause and a surrender clause of this character are present in a lease, the repair clause cannot be considered alone. Both clauses are to be read together and construed together.

While we’re at it, here’s how a Wisconsin court said the same thing in 1973:

[In general,] repair and termination clauses should be construed together as imposing the same obligation.

Of course, a lease might be written to “override” those concepts, but the parties would have to want to do so. That’s because courts get to interpret agreements, such as leases, and they read (or should read) those documents “as a whole” and not just look at words or phrases or entire provisions without looking at “context.” Yes, a seemingly clear provision can be qualified by an earlier or later provision within the same agreement. If a tenant is not responsible to eliminate the effects of “wear and tear,” then the landlord has accepted the burden of doing so if it wants to refurbish the leased space. So, if a landlord has agreed to accept the returned space in worn and torn condition, it is barred from asserting that the tenant had the responsibility to refurbish the premises on the last day of the term. That’s because if, during the term of its lease, the tenant was obligated to obliterate the effects of wear and tear, a provision allowing the tenant to deliver the space worn and torn would have no meaning.

In fact, some courts have read repair clauses to impliedly include an exception for ordinary wear and tear, For example, in the Wisconsin case from which we earlier clipped some text, the lease at issue said the tenant was “responsible for and shall make all other usual and necessary repairs,” and further added that this obligation “shall include without limitation . . . the making of usual and necessary elevator repairs [and] the maintenance of the elevators on the leased premises.” It also said that the tenant was required to surrender the leased space “in the same condition as the same were in at the commencement of said term, reasonable wear and tear . . . excepted.” With that in front of it, the court reasoned that “[t]he lessee’s obligation for repairs is simply to prevent him from claiming a breach of the lease by the landlord during the term for the failure to make repairs that were the lessee’s obligation and not the lessor’s.”

How did the court explain this? Here’s how:

A reasonable reading of the repair and replacement clause of the lease reveals that the purpose of the paragraph is the delineation of the responsibilities of the parties during the period of the tenancy. A clause of this kind is properly construed to impose only a minimal duty on the tenant to undertake repairs. He is obliged to keep the premises in such condition that he can use them for the purposes for which they are leased, but he is not obligated to do more. Upon termination, a lessee is in full compliance if the premises, except for ordinary wear and tear, are in the same condition as they were at the commencement of the term.

[If you’d like to read the court’s decision for itself, you can see a copy by clicking: HERE.]

At this point, readers might properly wonder why Ruminations picked today’s topic. Fair enough. We saw a February 2, 2017 decision by the United States District Court for the District of Minnesota. You, too, can see it by clicking: HERE. The court involved a pair of ground leases for adjacent parcels. One parcel was subject to a 1920 lease that expired in 2015. The other was subject to a 1949 lease expiring on the same date. By the time this court got to know about those leases, the same landlord owned the two parcels and the same tenant leased the two parcels. In each lease, the tenant was responsible for everything about the property and it could build a building do almost everything it wanted to do it the way of making changes to the building.

In 1993, the tenant stopped using the building it had built and the building was vacant until 2015 when the two leases expired (but for several years when a subtenant used the former retail store space for offices). The lease permitted both the subtenancy and the vacancy.

By virtue of the passage of time, though the building complied with all laws pertaining to a registered vacant building in its municipality, laws for a building to be occupied changed and to obtain a certificate of occupancy after the lease ended required curing 110 code violations. As a registered vacant building those were not code violations. The landlord argued that the tenant’s obligation to surrender this old building meant that the tenant had to restore it to one that could be used. That’s where the conflict between the “wear and tear” exception and the lease’s repair provisions collided. One of the two leases imposed the following duty on the tenant. The other said essentially the same thing.

To keep said premises and the appurtenances thereof in good order and repair during the said term, and faithfully to keep and observe all statutes and ordinances in force, relating to said leased premises, or the use thereof.

Practically speaking, the landlord was calling for a complete renovation of the building. The building got old on its own and through the expected and normal use incident to a retail store. If the landlord was willing to accept return of the building diminished by ordinary wear and tear, then it impliedly was willing to allow the tenant to leave “ordinary wear and tear” unrepaired during the course of the lease’s term. Further, things caused by aging that would have happened anyway had the building been unoccupied and unleased are considered to be ordinary wear and tear. While the tenant was required to comply with laws applicable to the building and its use of the building during the lease term, it had no liability to cure items that the law would require only after the lease had ended.

So, where does this leave us? First, we know have one of many good, but substantially similar, definition of “wear and tear.” More importantly, we have a clue that even without a lease containing an exception for “wear and tear,” the risk of ordinary wear and tear may rest on the landlord. We don’t suggest that anyone’s lease not deal with the issue, but if you find a lease, like the 1920 ground lease in the Minnesota case, that might be the outcome. Lastly, if any reader, after hearing this over and over and over in Ruminations, still thinks that she or he can read each sentence in a lease or other agreement as if there were no other sentences in the same document, stop doing so. If we want a specific result, then we need to make it clear that all of the agreement’s provisions are harmonized. Judges aren’t stupid, not even the ones that rule against us. It shouldn’t be hard to realize that we need to read all of a lease’s provisions dealing with and touching on a particular subject before we can know how any one of those provisions will be interpreted. That’s especially important when making a change to one provision of a lease (or other agreement) where the lease had been carefully harmonized in the first place. Further, this is probably a good time to look at your form documents and engage in the exercise of reading related provisions within those documents to see if they “hang together” and are unambiguous.

For those who are gluttons for punishment, we recommend that you read the Minnesota case. While not a model of clarity, it has a bunch of “nuggets” about issues that can arise at the end of a very long-term lease.

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