A discussion on building maintenance, and tenant responsibilities to manage repairs and provide regular upkeep on a number of systems.
Your lease covers at least 50 other issues besides how long it is and how much rent you pay.
While some are just for unlikely emergencies, others outline the responsibilities of the tenant on a day-to-day basis, which can be very expensive. In our last two posts we covered the importance of securing a business license and dealing with delays in possession.
In this installment of our series we begin our discussion on building maintenance, an issue that is now front and center given the age and physical condition of a substantial portion of the industrial inventory.
Whether you lease your space on a NNN or Gross basis, your responsibilities as a tenant to keep and maintain the building in good operating order are sweeping. Perhaps the best way to look at it is to assume that, as a tenant, you are responsible for the upkeep of the property as if you owned it.
The only major difference between the Gross and NNN lease in terms in terms of that responsibility is related to the maintenance of the roof and the structural elements of exterior walls and foundation, which, in a Gross lease, are paid for by the landlord. It’s no wonder that so many business owners choose to buy their own buildings, as they don’t see the logic in paying for a building as if they own it without the benefits of actual ownership.
Even the simplest of industrial buildings are complex. Electrical, plumbing, fire/life safety and irrigation systems, just to name a few, are common to all industrial properties. Much of that componentry has outlived its expected useful life due to age and intensity of use.
New buildings are a rarity anywhere in Orange County. So, chances are, the next building you lease will be at least 20 years old and probably has the original roof and HVAC system. In Garden Grove, for example, there have been no new buildings constructed since 1988. That is mostly true of other cities in the northern half of the county, as well.
In any lease, your responsibility to maintain the building doesn’t just mean that you have to fix what breaks during your lease. All leases contain provisions compelling the tenant to maintain service contracts (with proof thereof to the landlord) for the regular upkeep of the HVAC, fire/life safety system, roof membrane and irrigation system. The tenant also pays for all repairs that amount to less than 50% of the replacement cost of the item in need of repair.
If the cost to repair is greater than 50% of replacement cost, the Landlord pays for the replacement (a capital expenditure) and the tenant pays 1/144 of that cost as additional rent for the remainder of the lease term.
Clearly, the issue of building maintenance is an important one to every business that occupies leasehold space. So, it very important to understand what the risks are as it relates to each specific property, based on age, current state of repair and the intensity of the intended use.
Next week we will get into how tenants can protect themselves from the high cost of maintenance and how Landlords can make sure that their properties are being cared for in accordance with the terms of the lease.