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IF IT BREAKS, YOU (THE TENANT) FIX IT: Maintenance and Repair Obligations under Commercial Leases

January 23, 2019

 

By:  LaVonne Torrence Berner

 

A heating and air conditioning (HVAC) system breakdown or other equipment malfunction can mean days of downtime and lost revenue, especially for retailers and restaurants. The breakdown can be even more devastating for business if the tenant is responsible for the repair and has not set aside reserves. Because commercial leases often place all maintenance and repair obligations on the tenant, commercial tenants find themselves in this exact situation far more often than one may think.

 

Landlord commercial lease forms commonly hold the tenant responsible for repairs and replacements that can cost tens of thousands of dollars. The tenant can be responsible even if a breakdown occurs simply because the equipment is old and at the end of its life. For instance, a Landlord’s lease form may hold the tenant contractually obligated to replace an HVAC unit that dies in the first year of the lease term.

 

Other possible budget busting repairs and replacements include sprinkler/fire system upgrades and repairs and water heater and cracked pipe replacements. When these systems malfunction, tenants may also face the expense of damage to furniture, equipment, work product, and inventory, making the breakdown even more catastrophic.

 

So, what are some of the ways a tenant can mitigate maintenance and repair costs?  BEFORE signing the lease,

  • Have all major systems and equipment inspected by qualified contractors to determine condition and remaining use life.
  • Consider negotiating to shift all of or a portion of repair/replacement costs of old and worn systems and equipment to the landlord.
  • Request maintenance and repair records for major systems such as the HVAC.
  • Negotiate to have any remaining equipment warranties transferred to the tenant or available for the tenant’s use.
  • Budget for periodic maintenance and maintain reserves to cover inevitable repairs.
  • Carry property and business interruption insurance to cover lost revenue, furniture, fixtures, and equipment if damage occurs due to a system/equipment malfunction.
  • Have a full understanding of lease obligations, BEFORE the lease is signed. Once the lease is signed, it is a binding contract, and the terms of the lease are binding.
  • Have all landlord obligations documented IN THE LEASE. 

 

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