In the Spotlight: Imposition of Heightened Duty on Commercial Landlords for Repairs

For decades, the doctrine of caveat emptor provided the basis for the common law rule that a landlord has no obligation to make repairs (based upon the reasoning that the tenant leased the premises on an “as-is” basis and assumed all of the risks associated with that “as-is” condition). Over time, jurisdictions gradually modified this common law approach, most notably in the context of residential leasing where jurisdictions have afforded greater protection for residential tenants by imposing an implied warranty of habitability in such leases. Yet, in the context of commercial leasing, many jurisdictions were reluctant to modify the common law rule. In Massachusetts, for example, the Legislature enacted G.L. c. 186 ' 15, which provided greater protections to residential tenants. The Supreme Judicial Court of Massachusetts, in continuing the protections for residential tenants, subsequently imposed a duty to exercise reasonable care to remedy defects on the leased premises. See Young v. Garwacki, 380 Mass. 162 (1980). While several provisions of G.L. c. 186 were expressly limited to residential tenancies, others were silent on their application, and through the course of practice, thought not to apply to commercial leases. In fact, the Supreme Judicial Court of Massachusetts, after recognizing the inarguable differences between residential and commercial leases and the impracticality of applying residential protections in commercial transactions, refused to apply the Young ruling to commercial landlords. Humphrey v. Byron, 447 Mass. 322 (2006). In the absence of a ruling to the contrary, practitioners believed that the common law rule still applied to commercial leases.

Erosion of the Common Law

The common law has been displaced now in several jurisdictions where the courts are deviating from the common law rule in commercial leases and toward the imposition of an affirmative duty upon commercial landlords to undertake repairs to leased premises. In New Mexico, for example, the courts have rejected the common law rule outright and have imposed a duty on commercial landlords to remedy defects that a reasonable inspection would reveal prior to letting the premises. Gourdi v. Berkelo, 930 P.2d 812, 814 (N.M. 1996). However, other jurisdictions generally continue to recognize the common law rule that commercial landlords have no duty to tenants or their invitees for unsafe conditions on the leased premises, but have carved out exceptions in the case law, including imposing liability where the landlord conceals a defect or reserves the right in the lease to enter the leased premises to make repairs and receives notice of an unsafe condition. See Johnson County Sheriff's Posse, Inc. v. Endsley, 926 S.W. 2d 284 (Texas, 1996); Aguilar v. U.S., No. CIV 07-1310, 2009 U.S. Dist. LEXIS, at 21-22 (D.N.M. Jan. 8, 2009). Some have gone as far as to hold that the implied warranty of habitability applies to commercial as well as residential leases. See Richard Barton Enterprises, Inc. v. Tsern, 928 P.2d 368, 376 (Utah 1996). In a case of first impression in the Commonwealth, the Supreme Judicial Court made Massachusetts the latest jurisdiction to join this trend by holding that Gen. Laws c. 186, ' 19 applies to commercial landlords. Section 19 provides that a landlord who receives notice via registered or certified mail from a tenant of “an unsafe condition not caused by the tenant, his invitee, or any one occupying through or under the tenant” is obligated to “exercise reasonable care to correct the unsafe condition” within a reasonable time following receipt of the notice. The statute further provides that if a third party is rightfully on the leased premises and suffers injury “as a result of the failure [of the landlord] to correct said unsafe condition within a reasonable time,” such injured third party shall also have a right of action sounding in tort against the landlord. Section 19 overrides any contrary terms of a lease as the court ruled that any lease provision that attempts to waive a commercial landlord's obligations under ' 19 is “void and unenforceable.”

Facts of Bishop

In Bishop v. TES Realty Trust, 459 Mass. 9 (2011), the plaintiff, who operated a tanning salon in a building leased from the defendant landlord, notified the landlord by certified mail of a leak from a skylight, but the landlord took no action. Nearly two years later, the plaintiff suffered personal injuries when, as a result of the continuing skylight leak, plaster fell from the ceiling, landed in her eye and caused her to trip over a bucket that she had placed on the floor to catch water from the leak, resulting in a serious injury to her shoulder. The plaintiff, who had taken no actions to repair the skylight at her own cost, then sued the landlord for her injuries alleging that her injuries were a direct result of landlord's negligence in failing to make the necessary repairs to the roof. Notwithstanding the landlord's actual notice of the unsafe condition, the trial court found that ' 19 did not apply to commercial leases and that, under the common law rule, the plaintiff was responsible for making all repairs to the leased premises. Taking the case under direct appellate review, the Supreme Judicial Court, recognizing that it had never directly addressed the question of whether ' 19 applied to commercial leases, reversed the trial court and declared that the Legislature intended ' 19 applies to both residential and commercial leases.

Unresolved Issues

There are several issues that must be addressed in the wake of this decision. For example, how does the holding in Bishop impact “triple net” or “entirely net” leases? A large sector of the commercial leasing industry, particularly retail, focuses on the “triple net” or “entirely net” leases under which the tenant leases the entire premises and assumes all of the responsibilities with respect to the premises including maintenance, taxes, insurance, replacements and repair. In these leases, the tenant controls the entire premises and is clearly the best situated to handle repair obligations as they arise. It is the triple net nature of these leases that drives the economics of the underlying transaction. The owner/landlord, sometimes referred to as an “absentee landlord,” is essentially an investor without the day-to-day management responsibility for the property and without any real exposure to tort liability. Often, these landlords are out of state and sometimes reside thousands of miles from the leased premises. Will this expansion of landlord liability change the economics of these deals? Will it change the ability of some real estate investors to engage in this type of transaction, especially when they reside far from the premises, given the new obligation to respond to tenant notices identifying unsafe conditions? Although the Bishop court commented that in situations where the tenant has the express duty to repair, “the tenant is unlikely to provide such notice, and is more likely to repair the condition herself,” landlords face increased administrative and related costs in addressing such notices.

Also, the Bishop court failed to address what “not caused by tenant” means. If the lease expressly states, as in triple net leases, that the tenant bears all responsibility for repairs, maintenance and general upkeep of the building, then would the tenant's failure to remedy the unsafe condition in violation of the lease be a cause of the unsafe condition? Would such a provision now be viewed as a provision that attempts to waive a commercial landlord's obligations under ' 19, rendering it void and unenforceable?

Perhaps there is an approach that balances these arguments and provides a reasonable differentiator where justified. Not all situations should yield the same result. The court left the door open by noting that “commercial landlords may petition the Legislature to limit ' 19 to residential landlords, as the Legislature has done in many other statutes.”

Practical Effect and Pointers

In the event that a tenant, under a lease that allocated responsibility for repairs to the tenant, does provide notice to a landlord of an unsafe condition that was not caused by the tenant, the landlord will be able to recoup the cost of the repair from the tenant by including a landlord right of self help in the lease. The language of the right of self help should give the landlord the right to make necessary repairs and shall obligate the tenant to reimburse the landlord promptly, with interest, for the costs of such repairs. To defray the additional administrative or other support that landlords may now need in order to protect themselves, landlords should consider adding an administrative fee to the cost of such repairs in order to achieve the full benefit of their bargain.

While the facts in Bishop may be unique, this case is a clarion call for commercial landlords who lease property in Massachusetts to be cognizant of the application of G.L. c. 186, ' 19 and the requirement to respond in a timely manner to notices by tenant of unsafe conditions. The law is now clear in Massachusetts that ' 19 imposes an obligation on commercial landlords to repair any unsafe conditions that exist on their premises, once they are provided proper notice, so long as the unsafe condition was not caused by the tenant. This obligation rests with the landlord even where the tenant has the express obligation under the lease to make all necessary repairs to the premises and even where the tenant has control over the area of the defect creating the unsafe condition. Practitioners should double check that their leases obligate the tenant to obtain and maintain throughout the term of the lease commercial liability insurance in sufficient amounts naming landlord and its mortgagee as additional insured parties and be sure to provide the landlord with an express right of access to the premises in order to remedy unsafe conditions.

Catherine L. Burns is a partner in the Boston office of Seyfarth Shaw LLP. She can be reached at [email protected] or 617-946-4972.

For decades, the doctrine of caveat emptor provided the basis for the common law rule that a landlord has no obligation to make repairs (based upon the reasoning that the tenant leased the premises on an “as-is” basis and assumed all of the risks associated with that “as-is” condition). Over time, jurisdictions gradually modified this common law approach, most notably in the context of residential leasing where jurisdictions have afforded greater protection for residential tenants by imposing an implied warranty of habitability in such leases. Yet, in the context of commercial leasing, many jurisdictions were reluctant to modify the common law rule. In Massachusetts, for example, the Legislature enacted G.L. c. 186 ' 15, which provided greater protections to residential tenants. The Supreme Judicial Court of Massachusetts, in continuing the protections for residential tenants, subsequently imposed a duty to exercise reasonable care to remedy defects on the leased premises. See Young v. Garwacki , 380 Mass. 162 (1980). While several provisions of G.L. c. 186 were expressly limited to residential tenancies, others were silent on their application, and through the course of practice, thought not to apply to commercial leases. In fact, the Supreme Judicial Court of Massachusetts, after recognizing the inarguable differences between residential and commercial leases and the impracticality of applying residential protections in commercial transactions, refused to apply the Young ruling to commercial landlords. Humphrey v. Byron , 447 Mass. 322 (2006). In the absence of a ruling to the contrary, practitioners believed that the common law rule still applied to commercial leases.

Erosion of the Common Law

The common law has been displaced now in several jurisdictions where the courts are deviating from the common law rule in commercial leases and toward the imposition of an affirmative duty upon commercial landlords to undertake repairs to leased premises. In New Mexico, for example, the courts have rejected the common law rule outright and have imposed a duty on commercial landlords to remedy defects that a reasonable inspection would reveal prior to letting the premises. Gourdi v. Berkelo , 930 P.2d 812, 814 (N.M. 1996). However, other jurisdictions generally continue to recognize the common law rule that commercial landlords have no duty to tenants or their invitees for unsafe conditions on the leased premises, but have carved out exceptions in the case law, including imposing liability where the landlord conceals a defect or reserves the right in the lease to enter the leased premises to make repairs and receives notice of an unsafe condition. See Johnson County Sheriff's Posse, Inc. v. Endsley , 926 S.W. 2d 284 (Texas, 1996); Aguilar v. U.S., No. CIV 07-1310, 2009 U.S. Dist. LEXIS, at 21-22 (D.N.M. Jan. 8, 2009). Some have gone as far as to hold that the implied warranty of habitability applies to commercial as well as residential leases. See Richard Barton Enterprises, Inc. v. Tsern , 928 P.2d 368, 376 (Utah 1996). In a case of first impression in the Commonwealth, the Supreme Judicial Court made Massachusetts the latest jurisdiction to join this trend by holding that Gen. Laws c. 186, ' 19 applies to commercial landlords. Section 19 provides that a landlord who receives notice via registered or certified mail from a tenant of “an unsafe condition not caused by the tenant, his invitee, or any one occupying through or under the tenant” is obligated to “exercise reasonable care to correct the unsafe condition” within a reasonable time following receipt of the notice. The statute further provides that if a third party is rightfully on the leased premises and suffers injury “as a result of the failure [of the landlord] to correct said unsafe condition within a reasonable time,” such injured third party shall also have a right of action sounding in tort against the landlord. Section 19 overrides any contrary terms of a lease as the court ruled that any lease provision that attempts to waive a commercial landlord's obligations under ' 19 is “void and unenforceable.”

Facts of Bishop

In Bishop v. TES Realty Trust, 459 Mass. 9 (2011), the plaintiff, who operated a tanning salon in a building leased from the defendant landlord, notified the landlord by certified mail of a leak from a skylight, but the landlord took no action. Nearly two years later, the plaintiff suffered personal injuries when, as a result of the continuing skylight leak, plaster fell from the ceiling, landed in her eye and caused her to trip over a bucket that she had placed on the floor to catch water from the leak, resulting in a serious injury to her shoulder. The plaintiff, who had taken no actions to repair the skylight at her own cost, then sued the landlord for her injuries alleging that her injuries were a direct result of landlord's negligence in failing to make the necessary repairs to the roof. Notwithstanding the landlord's actual notice of the unsafe condition, the trial court found that ' 19 did not apply to commercial leases and that, under the common law rule, the plaintiff was responsible for making all repairs to the leased premises. Taking the case under direct appellate review, the Supreme Judicial Court, recognizing that it had never directly addressed the question of whether ' 19 applied to commercial leases, reversed the trial court and declared that the Legislature intended ' 19 applies to both residential and commercial leases.

Unresolved Issues

There are several issues that must be addressed in the wake of this decision. For example, how does the holding in Bishop impact “triple net” or “entirely net” leases? A large sector of the commercial leasing industry, particularly retail, focuses on the “triple net” or “entirely net” leases under which the tenant leases the entire premises and assumes all of the responsibilities with respect to the premises including maintenance, taxes, insurance, replacements and repair. In these leases, the tenant controls the entire premises and is clearly the best situated to handle repair obligations as they arise. It is the triple net nature of these leases that drives the economics of the underlying transaction. The owner/landlord, sometimes referred to as an “absentee landlord,” is essentially an investor without the day-to-day management responsibility for the property and without any real exposure to tort liability. Often, these landlords are out of state and sometimes reside thousands of miles from the leased premises. Will this expansion of landlord liability change the economics of these deals? Will it change the ability of some real estate investors to engage in this type of transaction, especially when they reside far from the premises, given the new obligation to respond to tenant notices identifying unsafe conditions? Although the Bishop court commented that in situations where the tenant has the express duty to repair, “the tenant is unlikely to provide such notice, and is more likely to repair the condition herself,” landlords face increased administrative and related costs in addressing such notices.

Also, the Bishop court failed to address what “not caused by tenant” means. If the lease expressly states, as in triple net leases, that the tenant bears all responsibility for repairs, maintenance and general upkeep of the building, then would the tenant's failure to remedy the unsafe condition in violation of the lease be a cause of the unsafe condition? Would such a provision now be viewed as a provision that attempts to waive a commercial landlord's obligations under ' 19, rendering it void and unenforceable?

Perhaps there is an approach that balances these arguments and provides a reasonable differentiator where justified. Not all situations should yield the same result. The court left the door open by noting that “commercial landlords may petition the Legislature to limit ' 19 to residential landlords, as the Legislature has done in many other statutes.”

Practical Effect and Pointers

In the event that a tenant, under a lease that allocated responsibility for repairs to the tenant, does provide notice to a landlord of an unsafe condition that was not caused by the tenant, the landlord will be able to recoup the cost of the repair from the tenant by including a landlord right of self help in the lease. The language of the right of self help should give the landlord the right to make necessary repairs and shall obligate the tenant to reimburse the landlord promptly, with interest, for the costs of such repairs. To defray the additional administrative or other support that landlords may now need in order to protect themselves, landlords should consider adding an administrative fee to the cost of such repairs in order to achieve the full benefit of their bargain.

While the facts in Bishop may be unique, this case is a clarion call for commercial landlords who lease property in Massachusetts to be cognizant of the application of G.L. c. 186, ' 19 and the requirement to respond in a timely manner to notices by tenant of unsafe conditions. The law is now clear in Massachusetts that ' 19 imposes an obligation on commercial landlords to repair any unsafe conditions that exist on their premises, once they are provided proper notice, so long as the unsafe condition was not caused by the tenant. This obligation rests with the landlord even where the tenant has the express obligation under the lease to make all necessary repairs to the premises and even where the tenant has control over the area of the defect creating the unsafe condition. Practitioners should double check that their leases obligate the tenant to obtain and maintain throughout the term of the lease commercial liability insurance in sufficient amounts naming landlord and its mortgagee as additional insured parties and be sure to provide the landlord with an express right of access to the premises in order to remedy unsafe conditions.

Catherine L. Burns is a partner in the Boston office of Seyfarth Shaw LLP. She can be reached at [email protected] or 617-946-4972.