The Repair and Maintenance Gap

[Tenant] shall, at [its] own expense and at all times, maintain the premises in good and safe condition, including plate glass, electrical wiring, plumbing and heating installations and any other system or equipment upon the premises and shall surrender the same, at termination hereof, in as good condition as received, normal wear and tear excepted. [Tenant] shall be responsible for all repairs required, including the roof, exterior walls, structural foundations and all other items. This is a triple net lease: [Tenant] is responsible for all repairs and maintenance.

Id. at *1 (emphases added).

Prior to the parties signing the 2004 lease, the roof had begun leaking occasionally. Over the next few years, the tenant made minor repairs to the roof, but after an ice storm in early 2007, the leaking became more severe and even damaged some of the tenant's merchandise. After the 2007 storm, the tenant repeatedly notified the landlord of the roof's condition and requested that the landlord replace the roof. The landlord refused, saying that the lease's repair provision obligated the tenant to fix or replace the roof as needed. Ultimately, the tenant vacated the premises in October 2007, well before the lease's 2009 termination date. The landlord sued the tenant for breaching the lease by failing to replace the roof and by leaving before the expiration of the lease.

The trial court held that the lease did not require the tenant to replace the roof, and that by failing to repair or replace the roof, the landlord had constructively evicted the tenant. Notwithstanding the express language in the lease that the tenant was “responsible for all repairs required, including the roof,” the appellate court explained that the “usual and ordinary” meaning of “repair” in a lease does not include structural repairs, so the burden of making structural repairs naturally falls on the landlord. Id. at *2.

The court further stated that even net or triple net leases do not automatically shift the responsibility for structural repairs onto the tenant. The court did note that parties to a lease are free to place this burden onto the tenant, but said that express language to that effect is required.

Notably, the court did not reference the above-quoted language in concluding that the lease “did not expressly require [the tenant] to pay for structural repair or replacement.” Id. at *4. Instead, the court borrowed a factor-based approach from a California Supreme Court case, Hadian v. Schwartz, 884 P.2d 46 (Cal. 1994), in determining that the obligation of structural repairs and replacements remained with the landlord. The six factors the court analyzed were: 1) the cost of the repair versus the remaining rent due under the lease; 2) the length of the stated lease term; 3) the benefit of the repair to the landlord and to the tenant; 4) whether the repair was structural in nature; 5) any disruption of the tenant's use of the premises that the repair would cause; and 6) the likelihood that the parties contemplated the specific repair at issue in drafting the lease.

Regarding the first factor, the court noted that the cost of replacing the roof was high when compared with the rent for the two years remaining on the lease. As to the second factor, the court noted that this replacement cost also was high in light of the fact that the lease in effect was short-term. Interestingly, in its analysis, the court did not mention that the total lease arrangement had been for more than 40 years.

Regarding the third factor, the court noted that while the landlord would receive the benefit of a new roof if it was replaced, the tenant had no such guaranteed benefit because the lease might not be renewed. The court also found the fourth factor in the tenant's favor because the repairs were structural in nature. Finally, the court stated that the final two factors did not favor either party despite the fact that, regarding the sixth factor, the lease's repair clause was fairly broad and expressly referenced roof repairs.

Other Rulings

The Whyzmuzis court is not alone in its conclusion. For example, in 2009, an Illinois Appellate Court also held that the landlord remained responsible under the lease for replacing a leaky roof. Quincy Mall v. Kerasotes Showplace Theatres, LLC, 903 N.E.2d 887 (Ill. App. Ct. 2009). In that case, the parties were 25 years into a 30-year lease, and the lease contained the following provision on repairs:

Tenant agrees during the term hereof to keep and maintain in good condition and repair, the demised premises and every part thereof, including without limitation the foundations, exterior walls, roof, exterior and interior portions of all doors, windows, plate glass, etc.

Id. at 889.

The court noted as a basic principle that a general covenant by a tenant to repair leased premises only requires the tenant to make ordinary repairs required to keep the premises in good condition, not structural repairs or replacements that are more permanent in nature. The court stated that to shift the burden for making structural repairs and replacements onto a tenant, “plainly discoverable” language to that effect is required. Id. at 890. The court concluded that the above-quoted language was a “general repair clause” that did not provide the clear and unambiguous language necessary to assign the duty for structural repairs or replacement to the tenant. Id. at 891.

When 'All' Means 'All'

Other courts have reached different conclusions. In 2011, the Northern District of Illinois ruled that the lease did shift responsibility for replacing a roof onto the tenant where the lease provided that “Landlord shall not be required to make any improvements or repairs of any kind to the Demised Premises and appurtenances, and the Demised Premises and appurtenances shall at all times be kept in good order, condition, replacement and repair by Tenant.” Chicago Title Land Trust Co. v. Fifth Third Bank, No. 11-C-1914 at *1 (N.D. Ill. Dec. 5, 2011). This court held that whether a repair is structural does not depend on the nature of the repair, but rather on whether it is likely that the parties contemplated the repair when executing the lease. The court explained that because the lease had an initial term of 25 years and optional extensions for another 50 years, replacing the roof likely was foreseeable by the parties, and so the general repair clause in the lease included replacing the roof.

Similarly, in 2011, the Georgia Court of Appeals held that the tenant was responsible for replacing the roof where the 20-year lease stated:

This lease is a triple net lease and therefore in addition to the rent due ' [tenant] shall be responsible for ' all expenses for the entire property and building, of any nature whatsoever during the term of this lease; with the exception that the [landlord] shall be responsible for any expense directly associated with and actually incurred with respect to the concrete walls, concrete slab, and foundation.

NW Parkway, LLC v. Lemser, 709 S.E.2d 858, 859 (Ga. Ct. App. 2011).

The court held that structural repairs did fall under this broad description of “all expenses,” especially in light of the fact that the provision specifically carved out certain items, not including the roof, for which the landlord retained responsibility.

Depending on the jurisdiction, it may be difficult to predict whether a court will place the burden for structural repairs and replacements on the landlord or on the tenant when it finds the lease does not specifically assign this responsibility. Moreover, even the factor-based analysis used by the courts in these cases does not appear to lead to consistent results.

What We Can Do

These varying results require us in reviewing leases for our clients to make sure that the leases are clear in assigning, or excluding, responsibility for specific items of repair and replacement. First, the assignment of responsibility for structural repairs and replacements should be addressed explicitly. The courts in the cases discussed above found that structural repair or replacement was not adequately addressed, which allowed the courts to find that the leases were ambiguous on this point. Ideally, structural repairs and replacements should be addressed separately from ordinary repairs.

In Whyzmuzis, the lease's sole repair provision placed responsibility for “all repairs and maintenance” on the tenant. Later in that same paragraph, the word “structural” was used, but only in connection with the building's foundation. This commingling of general and structural repairs may have aided the court in finding that the lease did not assign responsibility for all structural repairs to the tenant.

Second, the lease should provide some definition of what constitutes a structural repair or replacement. Even if the lease clearly assigns responsibility for structural repairs and replacements, if these terms are not defined, the parties may later claim the provision is ambiguous, thereby leaving a court, and not the parties, to determine who the responsible party is.

Finally, if the parties split the responsibility for structural repairs and replacements, the lease should either specify the responsibilities of both parties in this regard or should specify the duties of one party and state that all other responsibilities remain on the other party, thereby eliminating any gap in responsibility. If the lease outlines only one party's responsibilities, a court might find that the lease is unclear on which party has responsibility for other, similar repairs and replacements.

Conclusion

Ensuring that a lease accurately reflects the parties' intentions regarding structural repairs and replacements is often of particular importance because of the costs associated with such maintenance, which ultimately affects the overall economics of the lease and must be evaluated by our clients prior to execution. If a lease leaves gaps when addressing these issues, courts might analyze other factors surrounding the relationship and assign responsibility differently than the parties actually intended. By explaining the repair and replacement provisions to the client prior to execution of the lease, we add value in a way that is easily understood and appreciated.

The clients can then use that knowledge, especially when combined with consideration of the factors described above, in negotiating rent and other items in the lease, ultimately avoiding repair and maintenance gaps and ensuring that each party
understands its own responsibilities.

Daniel W. Graves is a solo practitioner in St. Louis, MO. His practice involves general corporate representation, real estate law, bankruptcy and collections law, tax law, and securities law. Marisa L. Byram is a member of Lewis, Rice & Fingersh, L.C. and a member of this publication's Board of Editors. Reach her at [email protected].

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Upon careful review, many commercial leases have what can be called a “repair and maintenance gap.” This gap is created when the lease specifies certain repairs and maintenance for which each of the tenant and the landlord are responsible, but then is silent on others. If the repair and maintenance provisions are not considered, negotiated, and drafted thoughtfully, a gap can remain, creating the opportunity for the parties to be at odds over who has responsibility for a particular item of repair or maintenance, including whether replacements are included in those obligations.

Sometimes 'All Repairs' Does Not Really Mean 'All'

For example, while it is not uncommon in a long-term lease relationship for the parties to agree that the tenant will be responsible for most repairs to the premises, including structural repairs, absent express language in the lease to that effect, a landlord may be surprised to learn that it has retained such responsibility. This result was illustrated in a recent Missouri case, Whyzmuzis v. Plaza Shoe Store, Inc., Case. No. SD31766 (Mo. App. S.D. Sept. 17, 2012). In Whyzmuzis, the tenant had leased space in a shopping center for over 40 years pursuant to a series of smaller leases rather than one long-term lease, with the most recent lease being entered into in 2004 for a five-year term. The 2004 lease contained the following provision regarding maintenance and repair:

[Tenant] shall, at [its] own expense and at all times, maintain the premises in good and safe condition, including plate glass, electrical wiring, plumbing and heating installations and any other system or equipment upon the premises and shall surrender the same, at termination hereof, in as good condition as received, normal wear and tear excepted. [Tenant] shall be responsible for all repairs required, including the roof, exterior walls, structural foundations and all other items. This is a triple net lease: [Tenant] is responsible for all repairs and maintenance.

Id. at *1 (emphases added).

Prior to the parties signing the 2004 lease, the roof had begun leaking occasionally. Over the next few years, the tenant made minor repairs to the roof, but after an ice storm in early 2007, the leaking became more severe and even damaged some of the tenant's merchandise. After the 2007 storm, the tenant repeatedly notified the landlord of the roof's condition and requested that the landlord replace the roof. The landlord refused, saying that the lease's repair provision obligated the tenant to fix or replace the roof as needed. Ultimately, the tenant vacated the premises in October 2007, well before the lease's 2009 termination date. The landlord sued the tenant for breaching the lease by failing to replace the roof and by leaving before the expiration of the lease.

The trial court held that the lease did not require the tenant to replace the roof, and that by failing to repair or replace the roof, the landlord had constructively evicted the tenant. Notwithstanding the express language in the lease that the tenant was “responsible for all repairs required, including the roof,” the appellate court explained that the “usual and ordinary” meaning of “repair” in a lease does not include structural repairs, so the burden of making structural repairs naturally falls on the landlord. Id. at *2.

The court further stated that even net or triple net leases do not automatically shift the responsibility for structural repairs onto the tenant. The court did note that parties to a lease are free to place this burden onto the tenant, but said that express language to that effect is required.

Notably, the court did not reference the above-quoted language in concluding that the lease “did not expressly require [the tenant] to pay for structural repair or replacement.” Id. at *4. Instead, the court borrowed a factor-based approach from a California Supreme Court case, Hadian v. Schwartz , 884 P.2d 46 (Cal. 1994), in determining that the obligation of structural repairs and replacements remained with the landlord. The six factors the court analyzed were: 1) the cost of the repair versus the remaining rent due under the lease; 2) the length of the stated lease term; 3) the benefit of the repair to the landlord and to the tenant; 4) whether the repair was structural in nature; 5) any disruption of the tenant's use of the premises that the repair would cause; and 6) the likelihood that the parties contemplated the specific repair at issue in drafting the lease.

Regarding the first factor, the court noted that the cost of replacing the roof was high when compared with the rent for the two years remaining on the lease. As to the second factor, the court noted that this replacement cost also was high in light of the fact that the lease in effect was short-term. Interestingly, in its analysis, the court did not mention that the total lease arrangement had been for more than 40 years.

Regarding the third factor, the court noted that while the landlord would receive the benefit of a new roof if it was replaced, the tenant had no such guaranteed benefit because the lease might not be renewed. The court also found the fourth factor in the tenant's favor because the repairs were structural in nature. Finally, the court stated that the final two factors did not favor either party despite the fact that, regarding the sixth factor, the lease's repair clause was fairly broad and expressly referenced roof repairs.

Other Rulings

The Whyzmuzis court is not alone in its conclusion. For example, in 2009, an Illinois Appellate Court also held that the landlord remained responsible under the lease for replacing a leaky roof. Quincy Mall v. Kerasotes Showplace Theatres, LLC , 903 N.E.2d 887 (Ill. App. Ct. 2009). In that case, the parties were 25 years into a 30-year lease, and the lease contained the following provision on repairs:

Tenant agrees during the term hereof to keep and maintain in good condition and repair, the demised premises and every part thereof, including without limitation the foundations, exterior walls, roof, exterior and interior portions of all doors, windows, plate glass, etc.

Id. at 889.

The court noted as a basic principle that a general covenant by a tenant to repair leased premises only requires the tenant to make ordinary repairs required to keep the premises in good condition, not structural repairs or replacements that are more permanent in nature. The court stated that to shift the burden for making structural repairs and replacements onto a tenant, “plainly discoverable” language to that effect is required. Id. at 890. The court concluded that the above-quoted language was a “general repair clause” that did not provide the clear and unambiguous language necessary to assign the duty for structural repairs or replacement to the tenant. Id. at 891.

When 'All' Means 'All'

Other courts have reached different conclusions. In 2011, the Northern District of Illinois ruled that the lease did shift responsibility for replacing a roof onto the tenant where the lease provided that “Landlord shall not be required to make any improvements or repairs of any kind to the Demised Premises and appurtenances, and the Demised Premises and appurtenances shall at all times be kept in good order, condition, replacement and repair by Tenant.” Chicago Title Land Trust Co. v. Fifth Third Bank, No. 11-C-1914 at *1 (N.D. Ill. Dec. 5, 2011). This court held that whether a repair is structural does not depend on the nature of the repair, but rather on whether it is likely that the parties contemplated the repair when executing the lease. The court explained that because the lease had an initial term of 25 years and optional extensions for another 50 years, replacing the roof likely was foreseeable by the parties, and so the general repair clause in the lease included replacing the roof.

Similarly, in 2011, the Georgia Court of Appeals held that the tenant was responsible for replacing the roof where the 20-year lease stated:

This lease is a triple net lease and therefore in addition to the rent due ' [tenant] shall be responsible for ' all expenses for the entire property and building, of any nature whatsoever during the term of this lease; with the exception that the [landlord] shall be responsible for any expense directly associated with and actually incurred with respect to the concrete walls, concrete slab, and foundation.

NW Parkway, LLC v. Lemser, 709 S.E.2d 858, 859 (Ga. Ct. App. 2011).

The court held that structural repairs did fall under this broad description of “all expenses,” especially in light of the fact that the provision specifically carved out certain items, not including the roof, for which the landlord retained responsibility.

Depending on the jurisdiction, it may be difficult to predict whether a court will place the burden for structural repairs and replacements on the landlord or on the tenant when it finds the lease does not specifically assign this responsibility. Moreover, even the factor-based analysis used by the courts in these cases does not appear to lead to consistent results.

What We Can Do

These varying results require us in reviewing leases for our clients to make sure that the leases are clear in assigning, or excluding, responsibility for specific items of repair and replacement. First, the assignment of responsibility for structural repairs and replacements should be addressed explicitly. The courts in the cases discussed above found that structural repair or replacement was not adequately addressed, which allowed the courts to find that the leases were ambiguous on this point. Ideally, structural repairs and replacements should be addressed separately from ordinary repairs.

In Whyzmuzis, the lease's sole repair provision placed responsibility for “all repairs and maintenance” on the tenant. Later in that same paragraph, the word “structural” was used, but only in connection with the building's foundation. This commingling of general and structural repairs may have aided the court in finding that the lease did not assign responsibility for all structural repairs to the tenant.

Second, the lease should provide some definition of what constitutes a structural repair or replacement. Even if the lease clearly assigns responsibility for structural repairs and replacements, if these terms are not defined, the parties may later claim the provision is ambiguous, thereby leaving a court, and not the parties, to determine who the responsible party is.

Finally, if the parties split the responsibility for structural repairs and replacements, the lease should either specify the responsibilities of both parties in this regard or should specify the duties of one party and state that all other responsibilities remain on the other party, thereby eliminating any gap in responsibility. If the lease outlines only one party's responsibilities, a court might find that the lease is unclear on which party has responsibility for other, similar repairs and replacements.

Conclusion

Ensuring that a lease accurately reflects the parties' intentions regarding structural repairs and replacements is often of particular importance because of the costs associated with such maintenance, which ultimately affects the overall economics of the lease and must be evaluated by our clients prior to execution. If a lease leaves gaps when addressing these issues, courts might analyze other factors surrounding the relationship and assign responsibility differently than the parties actually intended. By explaining the repair and replacement provisions to the client prior to execution of the lease, we add value in a way that is easily understood and appreciated.

The clients can then use that knowledge, especially when combined with consideration of the factors described above, in negotiating rent and other items in the lease, ultimately avoiding repair and maintenance gaps and ensuring that each party
understands its own responsibilities.

Daniel W. Graves is a solo practitioner in St. Louis, MO. His practice involves general corporate representation, real estate law, bankruptcy and collections law, tax law, and securities law. Marisa L. Byram is a member of Lewis, Rice & Fingersh, L.C. and a member of this publication's Board of Editors. Reach her at [email protected].

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