The extent of a tenant’s responsibility to maintain and repair their premises under a commercial lease is something that often causes concern for both landlords and tenants alike and is not always easy to determine.
If a tenant or landlord has queries about their liability for repair or maintenance to their premises, the starting point is to first obtain a copy of the lease and look at the various provisions dealing with both landlord’s and tenant’s responsibility for repair and maintenance. The wording of the lease may even require a tenant to do more than mere repair and maintenance. Furthermore, most leases will require the tenant to pay outgoings in addition to rent. Depending on the definition of outgoings in the lease, the tenant may be required to reimburse the landlord for the costs of carrying out landlord maintenance obligations under the lease, in addition to complying with tenant maintenance obligations.
Below are examples of common maintenance issues that arise. In these examples we have assumed that the lease is on the terms and conditions contained in the latest (6th) edition of the Auckland District Law Society Inc deed of lease (“ADLSi Lease”). However, every lease is different, so it is important that a landlord or tenant checks the terms and conditions contained in their own lease.
Broken or ineffective air-conditioning is an issue that can cause considerable stress and disruption to a tenant’s business. If a tenant believes that the air-conditioning in their premises needs repair or maintenance, the first step is to determine whether the air-conditioning forms part of the building services and is owned by the landlord or whether it is part of the tenant’s fixtures and fittings. Under the ADLSi Lease, the landlord is generally responsible for maintaining building services supplied by the landlord, and must have a service maintenance contract in place for air-conditioning. So if the air-conditioning system is owned by the landlord, the tenant should first request the landlord to arrange for the air-conditioning to be serviced or repaired.
Upon such repair being carried out by the landlord, the landlord may consider whether it can recover the costs of such repair from the tenant under the outgoings provisions in the lease. Whether these costs are recoverable, depends on the nature of the repair required. Under item 6 in the outgoings clause of the ADLSi Lease, the landlord can pass on “service contract charges for air conditioning …” and under item 7 the landlord can pass on the costs for “… maintenance and repair of building services to the extent that such charges do not comprise part of the cost of a service maintenance contract…”. If the works done to remedy the air-conditioning system are either covered by the service maintenance contract the landlord has in place or can be described as repair or maintenance, then the landlord would likely be entitled to recover such costs from the tenant. If however, the works required to remedy the air-conditioning comprise an element of renewal or replacement, for example if major components have to be replaced or upgraded or if the works done were due to an inherent defect in the air-conditioning system then these are likely not to fall within the definition of “maintenance and repair” and instead such costs are likely to be the responsibility of the landlord. Whether the works done fall within the definition of “repair and maintenance” or are classed as capital expenditure will depend on the facts in each case as to what works are carried out. If a tenant is concerned that they are being asked to pay for the costs of renewal or upgrade of the air-conditioning system or repairing an inherent defect, we would recommend the first step is to request more detail from the landlord as to the nature of the works carried out and whether the need for replacement arose through design defects or end of economic life issues.
Weather-tightness is another maintenance issue that regularly concerns tenants. One example would be if during a period of bad weather water got through the roof and caused damage to the tenant’s stock and equipment. Under the ADLSi Lease, a landlord is generally responsible for structural repairs to the exterior of the building and would be responsible for repairing the roof. Depending on the nature of the repairs, the landlord may be entitled to recover these costs from the tenant under item 7 of the outgoings clause, which excludes charges for structural repairs of the building but further states that ”…minor repairs to the roof of building shall not be a structural repair….”. In this situation it would depend on the facts as to whether the repairs carried out are minor works, which a landlord could recover as an outgoing from the tenant, or whether the works are structural repairs or repairs of inherent defects, in which case the landlord would bear the cost of such works. With regard to any damage the tenant might have suffered to its stock or equipment, the ADLSi Lease specifically states that the landlord is not liable for any loss suffered by the tenant which arises from “… any want of repair or defect unless the landlord shall have received noticed in writing thereof from the tenant and shall not within a reasonable time thereafter have taken appropriate steps to remedy the same.” This means that unless the tenant had already notified the landlord in writing of the need to repair the roof and the landlord had not carried out such repairs within a reasonable time, the landlord will not be required to reimburse the tenant for the damage to the tenant’s stock and equipment. This provision highlights the importance of the tenant promptly notifying the landlord (in writing) of any maintenance and repair works needed.
One aspect of tenant’s maintenance obligations that has changed in recent years is damage that is covered by the landlord’s insurance policy. A change to the law in 2008 means that except in certain circumstances, the landlord cannot recover losses from a tenant where the landlord is required under the lease to insure against such risks or the landlord’s insurance cover does in fact extend to such risks. A common situation where this may apply is when a tenant arrives at its premises in the morning to find that glass windows have been smashed overnight by an unknown person. The first step in deciding who is responsible for repairing the glass, is to check the extent of the landlord’s insurance requirements under the lease. The ADLSi Lease provides that the landlord’s insurance includes “…loss, damage or destruction of windows and other glass”. Even if the landlord is not required under the lease to insure glass, a tenant should still check whether the landlord has in fact taken out an insurance policy covering such damage. If the landlord has, then the cost of repair will be the responsibility of the landlord (and its insurers). In this instance, a landlord will be unable to recover the cost of any insurance excess for such a claim from the tenant, as the damage was not due to an act or omission of the tenant.
The above examples highlight the importance of reading and understanding both the tenant’s and the landlord’s respective maintenance obligations under the lease. If a query arises, the landlord or tenant should read their lease and if there is any uncertainty or confusion about the respective maintenance provisions, then they should consult a professional such as a commercial property lawyer who can assist. A tenant also needs to bear in mind that even if a particular item of repair or maintenance is the landlord’s responsibility under the lease, the landlord may be entitled to recover the cost of carrying out such repair or maintenance from the tenant in the form of outgoings.