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LEASE AGREEMENT REFERENCE GUIDE 650: THE OFFICE LEASE REPAIRS CLAUSE $49.95


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Lease Strategies
650

Product Overview

This LARG contains the following items:

A Tenant's Thoughts on the Repairs Clause in the Office Lease, The Office Tenant's Check List for the Repairs Clause, and Lease Clause Critique: The Pro-Tenant Office Building Repairs Clause.

Number of Single Spaced Pages: 12

 

Excerpt

A TENANT'S THOUGHTS ON THE REPAIRS CLAUSE IN THE OFFICE LEASE

 

As with most other things in life, the repair duties of the office tenant are negotiable. Such obligations are very much worth careful attention by the tenant, since many repairs cost lots of money, especially those to structural elements of the building, roofs, utility facilities, or heating, ventilating, and air conditioning (HVAC) systems. And just getting a specific item excluded from his duties under the repair clause does not necessarily constitute a complete victory for the tenant. The tenant may still pay for the repair as an operating cost, even though the landlord agrees to make it.

SINGLE TENANT OR MULTI-TENANT BUILDING?

Just what should be included in the tenant's repair obligations in a multi-tenant office building? As a rule, only nonstructural repairs within the premises. The landlord normally is responsible for structural repairs, even if they are located within the premises.

The tenant in a multi-tenant building rarely has responsibility to perform repairs outside of the premises, unless they were necessitated by the tenant's negligence or willful misconduct, or by that of its employees or agents. In a multi-tenant building, the landlord generally performs a more active repair and management function for the building, since no single tenant could be reasonably expected to bear the burden of repairs that would be required for the entire building (e.g., the HVAC system).

In single tenant office building leases, the tenant's scope of repair obligations is usually greater than the repair obligation of a tenant in a multi-tenant office building. With only one tenant in the building, both the landlord and the tenant expect the tenant to bear more responsibility for necessary repairs (that is, some types of necessary repairs, the tenant reminds us). This makes sense because the tenant will occupy the entire building (i.e., the whole building will be included in the definition of the tenant's premises), and since the tenant will have its own on-site maintenance personnel.

WHO FIXES IT—AND WHO PAYS?

If the landlord performs the particular repair item, he may insist that the cost of the repair be included in the operating costs paid by the office building tenants on a pro-rata basis. It is one thing to get the item excluded from the tenant's repair obligations. It is quite another to get it excluded from the tenant's repair obligations, and also excluded as an operating expense paid by the tenants on a pro-rata basis.

Of course, payment of a pro-rata portion of the repair is better than paying for the entire item. And the tenant may have better luck persuading the landlord to exclude the cost of certain repairs performed by the landlord from only its (i.e., that particular tenant's) pro-rata share of operating costs. The landlord can still try to collect the cost of that repair from the other tenants in the building.

WHAT DOES THE RENT COVER?

The tenant may have more success in excluding certain repairs (both from the tenant's repair duties and from inclusion in building operating costs) than others. Despite the office landlord's tendency to throw everything but the kitchen sink in as a building operating cost in the lease, some items do have a more aromatic presence there than others.

For example, asking the tenants to pay for structural repairs to the building as an operating cost is not something most landlords like to do in a loud voice. They may bury the item in two pages of "...including but not limited to..." language in the operating costs section of the lease, but, if asked, they will usually take it out. Likewise for capital improvements. After all, the office building itself is the capital improvement for which the tenant is paying the monthly rent, isn't it?

WIN HERE—LOSE THERE

And then there are the many other clauses under the lease that can alter, change or affect the provisions of the repair clause. Like the alterations clause that governs tenant alterations to the premises. Or the casualty clause, that covers reconstruction and insurance associated with a casualty or destruction of the premises or building. Or the building services clause that sets out the landlord's obligations with respect to the services for the building that the landlord must provide.

Or the clause pertaining to compliance with governmental orders that can require the tenant to comply, at its expense, with governmental orders or laws that affect the premises during the term of the lease? All these provisions must be harmonized and made consistent, so that a victory in the repairs clause by the tenant will not be negated elsewhere in the documentation.

FIVE CLAUSES DEALING WITH TENANT IMPROVEMENTS AND PERSONAL PROPERTY

This section looks at five different approaches to documenting rights and responsibilities for the tenant's leasehold improvements and personal property in the premises. In general, the landlord wants a minimum of responsibility for leasehold improvements. If there is a casualty which destroys the tenant's leasehold improvements, and the loss is covered, and the landlord is going to rebuild anyway, then it might agree to rebuild the tenant's building standard improvements. But that is all. The landlord wants no responsibility for any of the tenant's fixtures, inventory, furniture or personal property.

As far as the tenant is concerned, the notion that all permanent improvements become the landlord's property when the term expires is not usually a problem. The tenant just doesn't want to have to tear out its leasehold improvements in the premises at the end of the term. That's normally a deal breaker. As for personal property, tenants typically take the position that if the landlord is responsible for damaging the stuff, then the landlord should fix the damage.

Five clauses follow which take a varied approach to the rights of the parties concerning leasehold improvements, and the fixtures and personal property of the tenant. They include:

  • a pro-tenant restaurant clause giving the tenant the right to remove improvements up to thirty days after the expiration of the term;
  • a pro-landlord clause giving the retail landlord a security interest in the tenant's inventory, fixtures and personal property;
  • a modified pro-landlord provision which gives the landlord the right to require removal of post build-out improvements;
  • a neutral clause from a single tenant office lease which may require the tenant to remove post work letter improvements; and
  • a pro-landlord clause disclaiming any landlord responsibility for above building standard improvements and tenant personal property.

(continued)


End of Excerpt