WATCH YOUR LANGUAGE WITH “REPAIR CLAUSES” IN OHIO COMMERCIAL LEASES -PART 2-

(or they could become "replace clauses")

Generally speaking, courts will uphold language in a commercial lease, unless it is contrary to statutory law or public policy. Consequently, commercial landlords and tenants have a lot of leeway in allocating the risk and responsibility of issues inherent in commercial leases.

When allocating responsibility for maintenance and repairs, most commercial landlords intend for their tenants to make most of the repairs, especially in long-term, triple-net (NNN) leases. While some landlords may think repair always means replace; as a general rule, courts faced with this issue typically decide that if a landlord wants a tenant to replace the roof, for example, (versus make periodic repairs), the lease must specifically provide that it shall be the tenant’s obligation to repair and replace the roof. “Courts have held that an express covenant to repair will not be enlarged by ‘language’ construction…a covenant to repair does not include a covenant to replace.” Ohio Real Property Law and Practice, § 20.08 1-3 (2007).

As with many general principals of law, however, there are always exceptions to the rule. In Brown v. Spitzer Chevrolet Co., 181 Ohio App. 3d 642, 2009-Ohio-1196, the Fifth District Court of Appeals of Ohio created one of these exceptions. In the Brown case, Spitzer Chevrolet was a long-term tenant, leasing the property from Brown (landlord/owner) for an auto dealership. The Brown-Spitzer lease contained the following clause for “Care, Maintenance and Repair of Premises”:

“Tenant shall commit no act of waste and shall take good care of the Premises and the fixtures and appurtenances therein, and shall, in the use and occupancy of the premises, conform to all laws…Tenant shall be responsible for the repair and maintenance of heating, plumbing, electrical and air conditioning equipment and fixtures. Tenant shall further be responsible for the replacement of broken glass. Tenant shall also maintain the exterior of the premises including the roof and the structural integrity of the walls and foundations of the buildings and gutters, downspouts and gas, water, and sewer line”.

The evidence presented at trial revealed that the roof was beyond its useful life and needed to be completely replaced; the HVAC unit was no longer operational and needed to be replaced; the boiler was compromised due to excessive rust (the result of roof leaks) and needed to be replaced; the asphalt parking lots required major work and the exterior wood trim was rotting or missing in many areas. Further, exterior bricks and masonry were cracked due to decay from water penetration from the roof.

The trial court held that the lease agreement was a “triple-net lease”, which imposed a greater duty (on the part of the tenant) than other leases require, relative to maintenance and repair. Spitzer appealed the decision of the trial court (requiring Spitzer to replace all of the afore-mentioned items), contending that the specific language of the lease should control, and that the “repair clause” language did not specifically include an obligation to replace or restore any items. The court of appeals in Brown agreed with Spitzer, acknowledging that the lease did not expressly impose a duty to replace or restore. The court of appeals also reiterated the general law in Ohio regarding commercial lease construction; “if the language of a lease is clear and unambiguous, courts must enforce the instrument as written”. See Brown at 653, quoting Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St. 3d 657, (1992).

Nonetheless, creating an exception of sorts to the general rule, the court in Brown held that Spitzer had a duty to replace or restore the items at the property when, through Spitzer’s complete disregard of its express obligation to repair and maintain, the property became so deteriorated that the only means of repairing would be through replacement.

The court in Brown, however, took a slightly different approach with regard to the issue of whether the roof needed to be replaced. The court first noted that the tenant’s lack of maintenance of the roof did not create the need to replace the roof because the roof was a “Twenty-year roof” and would have needed to be replaced due to its age, regardless of the extent of repairs. In addition, the court factored in the “Surrender of Premises clause” of the Spitzer-Brown lease. The surrender clause provided that “tenant must surrender the Premises in as good a condition as they were at the beginning of the occupancy”, and the new “barrel roof” that the landlord wanted replaced was not in existence at the inception of the lease. As a result of the foregoing, the court followed the general rule of lease interpretation regarding the roof (that repair does not equal replace, unless expressly provided in the lease) and held that Spitzer had no duty to replace the roof.

The moral of the story: “Say what you mean, precisely, or a court will tell you exactly what you meant”. Simply adding a specific obligation to replace the roof on the part of the tenant would have yielded a decision the landlord obviously intended at the outset (that the tenant should replace the roof as well as the other interior and exterior items). Moreover, using specific replacement language regarding the other “repair items” would have prevented the need for litigation in the first place. Tenants with gross leases, tenants in multi-tenant buildings, and shorter term tenants should especially review these clauses to ensure that its repair/replacement obligations are clearly and accurately described. Dollar thresholds can also be used to help “unblur the line” between repair and replacement obligations.

On another practical note, landlord and tenant should always ensure that the “surrender of the premises clause” is logically in congruence with the “repair clause”. Landlords typically want the premises returned in good condition, with the tenant making any repairs and replacements necessary to put the premises in good condition. Tenants, on the other hand, not wanting to inherit the problems of an old building should negotiate for language comparable to the following: “tenant shall return the premises in as good condition as received at the inception of the lease, reasonable wear and tear and insured casualty excepted.”

As always, lease review and negotiation with the assistance of qualified real estate brokers and attorneys (before the lease is signed) is the best way to ensure that lease deals intended at lease inception, remain in place throughout their lease terms.