LEASE AGREEMENT REFERENCE GUIDE 1220: STRATEGIES FOR THE INDUSTRIAL REPAIRS CLAUSE $24.95
STRATEGIES FOR THE INDUSTRIAL REPAIRS CLAUSE
This LARG looks at the industrial repairs and maintenance clause. The first section reviews repair basics, includes a sample pro-landlord clause, and lists numerous possible pro-tenant exceptions. The Lease Clause Critique contains an extensive pro-tenant rider covering repair and replacement issues. The rider contains pro-tenant exclusions for repairs caused by hazardous materials, structural and capital repairs, and repairs required by the ADA--all with carefully drafted definitions.
The Landscape of the Pro-Landlord Maintenance and Repairs Clause in Industrial Leases
Just what should be included in the tenant's maintenance and repair obligations for premises located in an industrial building? The answer to that depends upon the relative strength of the parties, and whether the industrial space involved is in a multi-tenant or single tenant facility. (See below for a representative pro-landlord sample clause.)
That being said, the industrial tenant generally only performs repairs in the premises which aren't structural in nature. Examples of items subject to repair and replacement by the industrial tenant would include:
Landlord Repair Duties
The industrial landlord normally is responsible for structural repairs in the premises, and for the maintenance of the common areas of the industrial park, subject to operating cost reimbursements from the park's tenants on a pro-rata basis. The industrial tenant which shares the building with other tenants rarely has the responsibility to perform repairs outside of the premises, unless they are necessitated by the tenant's negligence or willful misconduct, or by that of its employees or agents.
In a multi-tenant building, the landlord often performs a more active repair and management function for the building, since it is difficult to impose the burden of repairs that would be required for the entire building or industrial park (e.g., the HVAC system) on a single tenant.
Single Tenant Deals
In single tenant industrial building leases, the tenant's scope of repair obligations is usually greater than that of a tenant in a multi-tenant industrial building. With only one tenant in the building, both the landlord and the tenant expect the tenant to bear more responsibility for necessary maintenance and repairs of the premises. This logically includes repairs to the roof, building systems and exterior portions of the building.
This makes sense because the tenant occupies the entire building (i.e., the whole building is included in the definition of the tenant's premises), and because the tenant will likely have its own on-site maintenance personnel.
Repairs and Operating Costs
If the landlord agrees to assume a particular repair item during lease negotiations that is normally performed by the tenant, the landlord may insist that the cost of the repair be included in the operating costs paid by the industrial building tenants on a pro-rata basis even though the repair relates to the premises of just one tenant. This means that the industrial tenant may negotiate items out of the repair and maintenance clause, only to find that the excluded item will be repaired by the landlord and included as an element of operating costs paid by the tenants on a pro-rata basis.
The ability of the landlord to include repairs made to individual premises in operating costs often hinges on the lease's precise definition of operating costs. Of course, such definitions are normally contained in the operating costs or definitions section of the lease, and not in the repairs clause. Narrowly drafted clauses favoring the tenant often specifically provide that only costs relating to common areas of the industrial park may be included as operating (or common area maintenance) costs. If the lease in question contains such a narrow definition, it may prevent the landlord from including costs which relate solely to a particular tenant's premises, and therefore, by definition, do not relate to the park's common areas.
Many pro-landlord lease forms have much more general (and generous, for the landlord) standards permitting the landlord to include any cost "relating to the ownership, management, operation, or maintenance" of the industrial park as an operating cost. That sort of pro-landlord language would probably allow the landlord to characterize repairs made to the premises of particular tenants as operating expenses, unless the tenant has negotiated specific exclusions to the expansive definition.