Common maintenance and repair issues under a commercial lease
Cavell Leitch is often asked by both our landlord and tenant clients to help determine the extent to which a tenant is required to maintain and repair their premises under a commercial lease.
In this article we set out a few common scenarios:
Scenario 1: The premises’ roof has sprung a leak and needs repair.
Who pays for the repair?
What if the roof was damaged in a storm?
What happens if the Tenant’s stock is damaged?
The starting point will always be to refer to the lease document. A typical Auckland District Law Society (ADLS) lease will require the Landlord to keep the premises water-tight. The Landlord may be able to recover some of the repair costs from a Tenant, but it is important to note that outgoing item 7 of an ADLS lease only allows a Landlord to recover costs for ‘minor repairs’ to a roof.
Repairs which are more than minor, or are caused by a structural defect in the building, will be payable by the Landlord. Exactly what constitutes a ‘minor repair’ as opposed to a ‘more than minor repair’ will depend on the circumstances.
The situation may be different again however if the roof was damaged in a natural event (e.g. a storm) for which the Landlord is insured. In this case the Landlord will be required to make a claim with its insurer, and the Landlord may be able to pass on the cost of the excess associated with this insurance claim to its Tenant (usually up to a cap of $2,000 per claim).
A Landlord would usually not be required to reimburse a Tenant for the cost of any damage to any of the Tenant’s stock or equipment that is damaged by the leak. An exception does apply however if the Landlord had been notified of the leak, but had failed to repair the roof within a reasonable time. It is therefore important that any weathertightness repairs are carried out asap.
Scenario 2: A Tenant takes over a premises which is in poor condition – can the Landlord force the Tenant to pay for the cost of upgrading the premises?
The short answer is no, the long answer is maybe!
The short answer is no – section 233 of the Property Law Act 2007 states that, unless the context suggests otherwise, a covenant under a lease to keep the premises in good condition does not require a Tenant to put the premises into a good condition if it was not so when the lease commenced. The recent decision Brian Green Properties (1971) Limited v Bindon Holdings Limited held this to be the case, even when a lease otherwise stated that the implied terms of the Property Law Act did not apply to the lease.
The long answer is maybe - The default position under most new ADLS leases is that a Landlord must bear the cost of any upgrades which are required to be made to the premises due to legislation e.g. earthquake strengthening.
However, this will again turn on the wording of the specific lease document:
Previous versions of the ADLS lease did allow a Landlord to pass on a percentage of this statute-mandated upgrading costs to a Tenant – this practice was known as Improvements Rent.
A Landlord can also require a Tenant to pay for any upgrading costs which are required due to the Tenant’s desire to alter their permitted use of the premises (e.g. additional fire protection systems).
A Landlord can require a Tenant to repaint and redecorate parts of the interior of the premises when they reasonably require repainting or redecorating.
A Landlord may be permitted to ask a Tenant to vacate the premises so that upgrading works can be carried out (provided rent and outgoings are fairly abated). A Landlord may even have the ability to cancel a lease if the required upgrade costs are excessive.
Scenario 3: The Landlord provides air-conditioning in the premises. The air-conditioning unit has however broken down – who pays for its repair? And what if it can’t be repaired?
Again we must start by reviewing the lease document. A typical lease will allow a Landlord to enter into a service and maintenance contract for any of the Landlord’s fixtures and fittings that are provided for the tenant’s use (such as air-conditioning in this case). The servicing fee will then be payable by the Tenant as an outgoing under the lease.
If the air-conditioning unit can be repaired, then the Landlord will be able to pass the reasonable repair costs onto the Tenant, and the Tenant will be required to pay these costs within a reasonable time of receiving them.
However, the situation would usually be different if the air-conditioning unit cannot be repaired. The unit may instead have reached the end of its useful life (it happens to all of us!) or perhaps it has suffered a critical failure. In this case, in the absence of a specific clause in the lease saying otherwise, the cost of replacement would fall on the Landlord as the Landlord is obligated to maintain building services.
Contact Cavell Leitch for specific advice
The above scenarios illustrate that the extent of the maintenance and repair obligations will ultimately turn on the specific wording of the lease. Cavell Leitch’s team of property experts can assist you in drafting a lease which achieves certainty for you from the outset, while we can also help you with interpreting the conditions of any lease that is already in place.