Minnesota Commercial Tenants: Tips for drafting lease maintenance provisions
By Daniel Bakken, Associate Attorney, Eckberg Lammers
To avoid a landlord dispute and the subsequent time and effort involved in resolving an issue, it is best to know your rights as a tenant under Minnesota law by drafting better lease provisions prior to entering into any commercial lease relationship.
Here are a few helpful hints when drafting your next lease:
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REMEMBER THE TENANT, NOT THE LANDLORD, HAS THE DUTY TO DEFINE WHAT WILL BE REPAIRED.
In Minnesota, commercial tenants must explicitly define the landlord's duty to repair. A landlord is not required to make repairs in a commercial lease absent an express lease provision. Krueger v. Farrant , 13 N.W. 158, 159 (Minn. 1882) (refusing to require landlord to repair roof in absence of lease provision); Dyrdal v. Golden Nuggets, Inc. , 672 N.W.2d 578, 587 (Minn. Ct. App. 2003) (refusing to require a landlord to repair ditch in the absence of lease provision). In Krueger , the Court wrote, "there is no implied covenant on the part of the landlord to make repairs [nor any warranty] that the premises are or will prove suitable for the tenant's use or business." 13 N.W. at 159. The Court noted that since the tenant is the party most interested in understanding the risks it will assume, "it is incumbent on [the tenant] to exercise proper care and precaution in selection and leasing of tenements ... and to require the proper stipulations in the contract for his protection." Id . at 159-60.
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REMEMBER THAT NEARLY EVERYTHING IS NEGOTIABLE.
Recently Minnesota Public Radio reported that commercial real estate vacancies hit a 20 year high in the second half of 2009. While this means that businesses continue to face a difficult environment in 2010, it also means that new commercial tenants are in hot demand and have nearly unprecedented bargaining power. Landlords are desperate to get new tenants and are willing to negotiate on items which may not have been previously negotiable. Below are lists of items typically covered by landlord and tenants. These lists are not complete and the tenant should keep in mind that nearly everything is negotiable.
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Typical items that the landlord maintains.
In the context of a commercial shopping development where several commercial tenants share a building or mall, the landlord typically maintains areas and items which are outside the immediate space rented by the tenant. Those items should include:
- pipes, ducts, wires, mains or conduits which do not serve the tenant's space;
- roof and gutters;
- foundation and floor slab;
- all plumbing underground or otherwise which does not exclusively serve the tenant's space;
- exterior walls and the structural portion of the walls;
- common areas; and
- heating, air conditioning and plumbing systems which serve more than one tenant.
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Typical items the tenant maintains.
Similarly, the tenant also is generally responsible for some items. These items are generally those which serve only the tenant's space. Those items typically include:
- window and doors (including glass on both);
- plumbing, heating, or air conditioning systems which exclusively serve the tenant's space including piping and ductwork; and
- tenants' improvements, trade fixtures and equipment.
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REMEMBER THAT "CLARITY IS KING".
Clearly define what must be maintained by the Tenant. If you do not want to pay for an item, the best thing to do is expressly state that in the lease. Remember that nearly everything is negotiable and similar commercial spaces are available. If you are not comfortable paying for an item, do not pay for it. Bad leases can put businesses out of business.
The lesson learned from the dispute referenced above is: when it comes to maintenance and repair requirements, the tenant should expressly outline what it will and will not be responsible for paying. The maintenance provision should avoid vagaries such as Tenant is responsible for everything "within the outside perimeter of the Tenant's space." Instead, the lease should simply define who is responsible for repair of walls, ceilings, floors and foundations. Another potential issue to avoid is addressing the maintenance requirements in multiple locations throughout the lease. In the recent dispute, the lease contained conflicting provisions in both the body of the lease as well as the exhibits. Try to keep all maintenance requirements in one location to avoid arguments about which provision controls.
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SAMPLE PROVISIONS
Below are two sample provisions from a lease between a shopping mall and a retail tenant. These provisions are for informational purposes and may or may not be applicable to your situation and all commercial leases should be reviewed by your attorney. However, these provisions should provide the reader with some direction as to the types of items which can be negotiated.
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Sample landlord provision
Landlord shall, at its sole cost and risk, maintain, or repair and replace any and all pipes, ducts, wires, mains or conduits which do not serve the Premises exclusively, the roof and the system for drainage of water therefrom, the foundation, the floor slab, the underground and otherwise concealed plumbing which does not exclusively serve the Premises, the exterior walls, and the structural portion of the Premises, excluding all windows, window glass, plate glass and all doors of the Premises. Tenant shall give notice to Landlord of the need for repairs, corrections or replacements, provided Tenant has knowledge thereof, and Landlord shall proceed promptly to make such repairs, corrections or replacements. When performing any repairs which involve the Premises, Landlord shall use reasonable efforts to keep interference with Tenant's business to a minimum and Landlord shall (i) perform such work in a good and workmanlike manner; and (ii) diligently prosecute such work to completion (including the restoration of Tenant's improvements and fixtures that were disturbed by Landlord to complete such work). Additionally, Landlord shall not locate any ducts, pipes, mains, wires or conduits in any part of the Premises which would materially interfere with Tenant's operation of its business. Landlord shall not be required to make any repairs to the Shopping Center or building of which the Premises are a part which have been necessitated by the act, omission or neglect of Tenants or its agents, employees or contractors, such repairs shall be performed by Tenant at Tenant's sole expense.
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Sample tenant provision
Tenant shall, at its expense and risk, maintain all other parts of the Premises which are not required to be maintained by Landlord in good condition, including, but not limited to, the windows and doors of the Premises and all glass therein; the heating system, air conditioning equipment and plumbing which exclusively serve the Premises; and Tenant's improvements, trade fixtures and equipment; provided, however, that Landlord shall make any repairs necessitated by reason of a structural defect in the Premises or its foundation and any repairs necessitated by the act, omission or neglect of Landlord, or its agents, employees or contractors. Landlord shall, at its sole cost, promptly perform the repairs so necessitated, and Tenant shall have the remedies set forth in Section __ if Landlord fails to do so.
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