There are a variety of maintenance and repair items with respect to leased premises and the building or shopping center that need to be addressed in the lease. Several of these items should be landlord’s responsibility, and a diligent tenant will address these items specifically in the lease to avoid any confusion or vagueness. Some things to consider for landlord’s maintenance are the following:
Building Structure, Roof, and Utilities
During the term, the landlord generally should be obligated to maintain, repair and replace the structural elements of the building and to keep the roof water tight. Landlord ideally will be responsible for utility lines from the point of main connection to the point where the lines enter the leased premises. The landlord also should be responsible for life safety equipment, including alarms, and the sprinkler system.
Common Area Condition
Landlord should maintain, operate and repair the common areas in quality manner. An easy standard to include in the lease is that the manner of upkeep should be ‘equal to the highest standard for shopping centers or buildings of similar size and character in the geographic region in which the leased premises are located’. This is important, particularly if the current landlord sells to a new party that may try to downgrade the quality of the center. The common areas should be maintained in compliance with all applicable law.
One specific item that should be addressed for retail tenants is the HVAC system. Ideally, the landlord will repair and replace the HVAC system as it becomes necessary during the lease term, but a landlord usually will not accept responsibility for both. The repair and replacement each are negotiable items, with the biggest factor being the age and condition of the HVAC unit. If the unit is new at the beginning of the term or is in exceptionally good repair, the landlord is much less likely to want to pay for a new one during the term.
A reasonable compromise is for the landlord to handle replacements and for the tenant to handle repairs. The parties could agree to have the replacement cost amortized over its useful life, with the annual prorated cost paid by tenant. Landlord and tenant also could agree to a cap on tenant’s repair cost obligation, and Landlord then would pay for costs exceeding this capped amount. The HVAC unit is a major item, but with careful negotiation, the parties should be able to reach a suitable compromise.
As a protective measure, it is useful to include a provision requiring landlord to perform its work while using its best efforts to minimize the disturbance of tenant's business. This will be a provision that tenant can raise in the event the construction interferes with the enjoyment of the premises or the access to or visibility of the leased premises.
Another helpful provision is to provide tenant with the right to make landlord repairs in the event landlord does not timely do so and then to offset those costs against rent coming due. This type of self help provision may receive some pushback from the landlord’s attorney, but it is worth trying to negotiate into the lease.
Clearly articulating the maintenance, repair, and replacement responsibilities in the lease will avoid any confusion as these items become necessary during the term. The goal is to avoid any confusion because it can lead to delay and business disturbance, and ultimately could be a distraction from the tenant’s main goal: the success of its business.
For more, please visit Tenant Leasing 101 on Amazon here.