Maintenance and Repair Provisions in Commercial Leases: Are You Protected?
It’s 3:45 AM, you’re fast asleep, and you wake up to your phone ringing. It’s your building manager, who tells you that a significant amount of water is pouring from a water supply line running across the ceiling of the warehouse space you lease in a small industrial building. Your raw materials and finished goods inventory are soaked. You scramble to put on your shoes and run out the door to save as much as you can from water damage. While insurance may cover damage to your personal property, who has to fix that water line?
The next day, after surveying the damage and salvaging what you can, you pull up your lease on your laptop and scroll to the section titled “Maintenance.” The only thing that’s clear from your review is that the maintenance and repair provisions are grossly inadequate. Without even thinking about picking up the phone to speak with an attorney, you realize your landlord is going to be discussing (or arguing over) who is responsible for the repair.
While on one hand you may resolve any disagreement with your landlord amicably, the entire issue could have been avoided if the lease was carefully drafted. Contracts, including commercial leases, invariably contain gaps and ambiguities. The difference between well-drafted and poorly drafted contracts ultimately comes down to how narrow those gaps are and how effectively ambiguities are eliminated.
While many lease provisions almost never come into play (eminent domain, for example), maintenance and repairs are a part of everyday life for tenants. Leases vary greatly in their assignment of maintenance and repair obligations between landlords and tenants, but different types of properties (i.e., indoor mall versus warehouse space) carry typical provisions. Even within different types of leased premises, maintenance obligations will differ depending on the particular building involved.
Maintenance and repair obligations can be conceptualized in a number of ways. One such method is differentiating who is responsible for the cost of the repair, and who is responsible for actually undertaking the repair. For example, the landlord may take responsibility for making a particular repair and charge the cost of that repair directly to the tenant. This allows the landlord to control the quality of repair while at the same time recouping the cost from the tenant.
Another consideration when defining repair and maintenance obligations is breaking those obligations out among the various elements of the leased premises. Who is responsible for repairing or replacing plate glass? HVAC? Plumbing? Interior walls? Exterior walls? Roof? Who is responsible for paying for those items?
Maintenance and repair obligations should be a critical component in any analysis of the affordability of leased space. While the base rent offered by a particular landlord may be attractive, you may discover that you are also responsible for significant common area maintenance (CAM) charges, which pushes the cost of the leased premises beyond your budget.
Addressing maintenance and repair obligations with your landlord or broker in your initial discussions is always recommended, especially because it can significantly impact your actual cost. Within a lease itself, those obligations should be defined as clearly as possible to eliminate any gaps or ambiguities and prevent disputes. Attorney review of any lease is recommended, but it is especially important in a commercial context as there are far fewer protections for commercial tenants vis-a-vis residential tenants.