Spring 2007

A COMMERCIAL TENANT'S OBLIGATION TO REPAIR AND MAINTAIN THE LEASED PREMISES MAY NOT INCLUDE THE OBLIGATION TO PERFORM MORE EXTENSIVE REPLACEMENTS

It is a common practice in commercial real estate lease agreements for the tenant to agree to maintain and repair the leased premises during the tenancy.  As can be imagined, the extent of a tenant’s obligation to maintain and repair the premises has been the subject of much debate.  For example, is a tenant obligated to replace a roof when, at the time of lease inception, the roof was already old and dilapidated?  As explained below, the answer appears to be that it depends on the express language of the lease agreement.

In ASP Properties Group v. Fard, Inc., the landlord argued that the tenant was obligated to replace an old and dilapidated roof pursuant to tenant’s maintenance and repair obligations.  The tenant responded that the roof was old and unrepairable at lease inception and, thus, the tenant was not obligated to replace the roof.  The trial court agreed with the tenant and concluded that the tenant’s obligation to maintain and repair did not extend to an obligation to repair the roof.  The landlord appealed.

On appeal, the Court of Appeal (Fourth District) reviewed the express language of the lease agreement and noted that the lease agreement required the tenant to maintain and repair the roof.  In analyzing the extent of the tenant’s obligation to maintain and repair, the Court of Appeal acknowledged that, “Modern cases show reluctance to place too literal an interpretation on the tenant’s covenant to repair.”

 Then, the Court of Appeal reviewed various California cases which contained the following statements: (1) “to maintain means to repair and keep in good condition things that exist, and not the creation of something new”; (2) “a covenant to keep the leased premises in repair does not obligate the tenant to keep the building up as a new building”; and (3) “the word repair in its ordinary sense relates to preservation of property in its original condition and does not carry the connotation that a new thing should be made.”

 After reviewing relevant case law, the Court of Appeal concluded that the tenant was not obligated to replace the roof, and tenant’s duty of maintenance meant that the tenant was to maintain the roof in the same condition it was received at lease inception (i.e., in its then-dilapidated condition).  The Court of Appeal reasoned that “[h]ad the parties intended Tenant to assume the obligation to replace the roof, one would reasonably expect the Lease and/or Amendment to expressly so state rather then merely stating Tenant was required to maintain the roof.  Case law supports a conclusion that, absent an express provision (or undisputed extrinsic evidence) showing a tenant has an obligation to replace a roof, a tenant’s obligation to maintain and repair the premises (including a roof) does not include an obligation to replace an old, dilapidated roof with a new roof at tenant’s expense.”

 Although the Court of Appeal concluded that the obligation to maintain and repair did not include the obligation to make replacements or renewals, the court did acknowledge that a tenant would be obligated to make replacements if there was express language in the lease agreement placing such an obligation on the tenant.  At this time it is difficult to predict how future California courts will treat lease agreements placing a replacement obligation on commercial tenants.  However, it is anticipated that California courts will take a conservative approach and uphold a tenant’s obligation to make replacements only when the lease agreement clearly and unambiguously spells out the tenant’s replacement obligation. 

                                                                        Gregory L. Torres 

Mr. Torres is a Principal in the firm’s real estate department.  Email:  glt@kpclegal.com.

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