Who Fixes What At The Shopping Center? How Do You Know?

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A shopping center has a finite number of elements requiring maintenance, repair or replacement. Basically, in mathematical terms, it is a closed set. That means all possible points are within its boundaries. So, if you allocate responsibilities for certain parts of a shopping center to one party and then say that the other party has responsibility for everything else, you’ve covered every possibility. Given that the leased space is a sub-part of the entire shopping center, it is easier to list a tenant’s responsibilities than to list its landlord’s. That’s made even easier if you can say that the tenant is responsible for everything inside the leased space except for a short list of discrete items. Then, you can add a short list of items outside the leased space and the result will almost always be complete as to the tenant’s role. Everything else would be cast upon the landlord.

Of course, there are other approaches that work. We’re perplexed by leases saying that a tenant is responsible for everything inside the leased space, “including but not limited to …,” because we thought we understood what “everything” meant, but that seems to be the convention and, after a long time, one gives in to convention. The same puzzlement arises when we see long lists of what a landlord needs to maintain in the common areas. If common areas are exclusive of the leased spaces, then we think we would be comfortable seeing that the landlord is responsible for maintaining, repairing, and replacing all elements of the common areas.

Before we move on to reveal why, today, we are writing about something almost all of us see as so basic as to need no exposition, there is another basic concept to be covered. There is more to a shopping center than the common areas and the leased spaces (which, for simplicity, is all tenants are responsible for). There are buildings and other parts of the property NOT for the common use of tenants and invitees. So, we think a lease should say that the landlord is responsible for everything the tenant is not responsible for. And, that includes the other leasable space at the shopping center. Just because a landlord delegates such responsibility to other tenants shouldn’t relieve the landlord from primary responsibility. A leak from an adjacent space into the tenant’s space should be directly or indirectly cured by the landlord. One tenant shouldn’t be limited to recourse against its neighbor.

One last point – a lease needs to say who pays for what. Without arguing about the concept that a tenant should pay for some kind of proportionate share of common area maintenance costs, we’ll assume that to be the “standard.” So, a lease needs to define what constitutes “common area.” It is generally accepted that such areas are those designed and intended for use by tenants or shopping center invitees. The common practice of giving examples for such areas by listing items such as sidewalks, parking lots, lighting, and the like makes sense. Where there are questionable areas, such as loading docks, it also makes sense to declare them as “in” or “out.” That’s pretty basic, though to get a particular lease “right” requires knowledge of the particular property. You can’t just use a common form of lease and insert the property address.

One point beyond the last point: there are items for which the cost is commonly passed on to tenants even though those items are not part of any common areas. Roofs are not for the use of tenants. So if a lease is intended to pass along roof-related costs, it needs to be explicit. That’s pretty common knowledge. But, let’s think about the following. When a lease says that the tenant will pay a share of the cost of operating, etc. the common areas, including such items as property insurance, what can get passed along to a tenant? What does property insurance cover in the common areas – the lighting fixtures? Virtually all of the insured value is in the buildings and the buildings are not part of the common areas. So, this item (by example only) should be listed above and beyond common area maintenance costs – “property insurance for improvements at the shopping center.” Less significant, but similar items, might be costs related to leaders and gutters or repainting buildings.

Now to the court decision that triggered today’s blog posting. We came across a December 12, 2017 decision from an appellate court in the State of Washington. It analyzes a lease that doesn’t directly say what, if anything, the landlord was required to maintain, repair or replace. At the end of the day, it concluded what we would all expect – that the landlord, not anyone else, had responsibility for taking care of the common areas. Just think how much easier and less expensive it would have been had the parties read today’s blog posting?

If the lease didn’t directly impose any maintenance or repair obligations on the landlord, what did it say that might do so? For one, it made the lease subject to agreements of record. It also, as part of its rent subsection, included the following unremarkable text:

(1) Operating Expenses. In addition to the minimum monthly rent, Tenant shall pay as additional rent its share of all operating expenses for the Retail Center. As used herein “operating expenses” shall mean all costs of administration, operation, management, maintenance, repair and replacement of the common areas of the Retail Center . . . including but not limited to: . . . costs of repairs, replacements and general maintenance; cost or rental value of the Retail Center office; and a management fee of four percent (4%) of the gross rentals of the Retail Center.

The court also thought the following provision to be important:

Tenant shall keep the outside areas immediately adjoining the Premises clean and free from snow, ice, dirt and rubbish, and shall not place or permit any obstructions or merchandise in any of such areas.

There was an agreement of record – CC&Rs: Covenants, Conditions, and Restrictions. They required something called a “Declarant” to maintain the shopping center’s common areas. Obviously, if the landlord met the definition of “Declarant,” that would have been the beginning and end of the issue. It didn’t. Here’s why. The CC&Rs said:

The “Declarant” is “[the original landlord], or any successor or assign who has or takes title to any portion of the Property and who is designated as a Declarant in a written instrument executed by an immediately preceding Declarant and recorded in the County Records.

In that definition, you’ll find a very common three letter word: “and.” This dispute involved a successor to the original landlord, but it wasn’t designated in a recorded instrument as the “and” required. “But” is also a very common three letter word.

There was one more relevant document. It was a “CAM Agreement” and the landlord before the court was a party to that agreement. The tenant was not. It provided, in relevant part, as courts are wont to say:

[F]or the common operation, control, [and] maintenance of the common area portions of the Shopping Center . . . to include all driveways, drive aisles, sidewalks, parking areas, landscaping, and other amenities.

It appointed the current landlord as:

[T]he Maintenance Director, responsible for the operation, control, and maintenance, of the Common Area.

As “Maintenance Director,” it was responsible for:

maintaining the Common Area in good, clean condition and fully operational at all times [and] any repairs and maintenance required in the Common Area.

The CAM Agreement WAS NOT an agreement of record to which the lease was subject. Yet, it was the nail in the coffin for the landlord.

How did the appellate court put all of this together? It used its head. It rejected the mechanical approach used by the lower court, where that lower court concluded: “No landlord maintenance lease provision = no landlord maintenance responsibility.”

Basically, the appellate court asked why there would be a common area maintenance cost allocation to the tenant if the landlord wasn’t going to maintain the common areas. It never considered that it would come into play if, and only if the landlord voluntarily chose to do some maintenance. Perhaps that’s because it applied some further logic.

The court posited that the tenant might actually do a repair to the common areas. After all, the lease didn’t prohibit such. And, if the tenant spent $100 for such a repair, then the proration formula would become applicable. But, according to the court, who would reimburse it for the costs above its proportionate share? There was nothing in the lease to answer that question, but the lease was clear that the tenant would be responsible for no more than the lease-allocated share. So, the court, intent on giving meaning to every lease provision, none having just fallen from the sky, (correctly) figured out that if any maintenance were needed, it was to be the landlord’s responsibility.

Basically, as we have written more times that Carter’s has pills, the court pondered and then ruled as to the intent of the (original) parties. In doing that, it was aided by that “outside” agreement – the CAM Agreement. Seeing that the current landlord had executed it (even though there was an omission when it came to recording it as the successor Declarant, the court felt this agreement reinforced its conclusion that the lease implied that common area maintenance responsibility was the landlord’s obligation and not to be done at its option. Further, it noted that the landlord “knew” it had responsibility. Why else would it have signed the agreement when it acquired the shopping center?

How much simpler it would have been to just say so! Perhaps the original landlord thought making the lease subject to the CC&Rs would be enough. Yes, that would have been efficient, but that’s not where one expects to see such an obligation stated. And, as here, parties can be sloppy. They might not “record” the change of identity for the Declarant). Thankfully, no one suggested that the originally named Declarant, if it still existed, was the one to maintain the shopping center.

For those readers interested in the details of the case we looked at, it can be seen by clicking: HERE. It is somewhat long and includes a number of unrelated disputes and facts that might interest leasing aficionados.

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Comments

  1. Steve Anderson says:

    Most leases are pretty clear about who pays for what, but many leases are surprisingly (to me) unclear about who is supposed to do the actual work (usually repairs). So, for example, a tenant in a large office building understands that it must pay to maintain and repair an HVAC unit that only serves that tenant’s space but the lease rarely says that the only person(s) who may do the work are landlord’s maintenance staff (which is almost always the case).

  2. Two thoughts:

    1. Assuming for a moment that “common areas” have been adequately defined, I encourage that every lease state something like the following:

    Landlord agrees that it shall operate and maintain all of the common areas, their improvements, elements, components, equipment and infrastructure, whether any of the same are located outside of, on, or in the Building(s), above ground or underground (the “Common Elements”) in a timely manner applying commonly accepted professional property management standards and practices, including the application of preventive maintenance measures designed to extend the life of the Common Elements and/or reduce Common Area Operating Costs, commensurate with those applicable to properties of a similar size and nature in the greater ———- metropolitan area.

    Surely, this concept, in and of itself, doesn’t address all of the issues that may attach. And, yes, it’s cumbersome. And, yes, it opens up the door to many other questions. But at least it secures landlord’s agreement that such actions (as the same may be interpreted) are its sole responsibility.

    2. As many rental spaces have common area elements which pass through but do not exclusively serve the occupant of that space, I feel that maintenance and repair of those elements should be the landlord’s responsibility. They might include such elements as water lines, waste lines, sprinkler lines, power lines.

  3. Elliot L. Warm, Esq. says:

    From a landlord’s perspective, it’s best to state that the tenant is responsible for the costs of all maintenance, repairs, etc. relating to areas of the overall property that are outside of leased or leasable space. It’s a good idea, I think, to nevertheless expressly include (without limitation) a few areas such as roofs, gutters and exterior of buildings, even though a plain reading should logically tell us that “all” is “all.” I am a bit leery because I have had numerous issues arising out of older leases that defined CAM charges in terms of the parking and landscaped areas and left it unclear, or maybe not arguable at all, that buildings could be deemed common areas. Roof charges often were the main bone of contention.

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