Does Duty to Keep "In Good Repair" Require Tenant to Replace Roof?

One of the most important aspects of any commercial lease is how it apportions responsibility for maintenance and repair of the leased premises, including the roof. Although there’s an infinite number of possible arrangements, tenants are generally expected to contribute to the costs of roof maintenance and minor repairs, while landlords retain financial responsibility for major repairs, replacement, and capital improvements. Of course, landlords and tenants can agree to shift these fundamental responsibilities as they see fit. But to do so requires clear language. Standard lease provisions requiring tenants to pay for keeping the roof “in good repair” may not be enough to pass along roof replacement and improvement costs to tenants. Consider the following scenario.

WHAT THE LEASE SAYS

Section 6.03(a) of a commercial lease with an ice rink operator tenant named Ice Palace requires the landlord to keep the roof of the building “in good order, condition and repair.” Section 6.03(b) requires Ice Palace to “pay or reimburse” the landlord for “all costs” it incurs in meeting the requirements of Section 6.03(a).

WHAT HAPPENED

In February 2021, after handling necessary roof repairs on its own without involving the landlord since 1994, Ice Palace notifies the landlord that the roof is leaking. The landlord seeks bids from roofing repair contractors. One of the bidders proposes not simply to repair the leak but restore the entire roof with a lightweight, seamless membrane that will “prevent” all future leaks. The estimated cost: $90,000. The landlord accepts the bid.

In March, the landlord charges Ice Palace $25,000 in “roof reserves”; in April, it hits Ice Palace with another $25,000 roof reserves charge. Ice Palace refuses to pay and, in May, begins making roof repairs itself. The landlord notifies Ice Palace that making self-repairs is a lease violation and orders it to stop immediately. Ice Palace complies but remains adamant about not paying the roof reserves charges. So, it finds a contractor willing to do the repairs for $60,000, of which it offers to pay 40 percent. The landlord rejects the offer.

In July, the landlord’s contractor starts the restoration work. The landlord invoices Ice Palace for the costs of the work as they’re incurred in August, September, and October. Ice Palace doesn’t pay the invoiced amounts. So, the landlord serves Ice Palace with a Three-Day Notice to Pay Rent or Quit, demanding $102,910—the full amount charged by the contractor for the work, plus late charges and interest. Ice Palace holds firm, and the landlord goes to court seeking eviction.

YOU MAKE THE CALL

Is Ice Palace liable for the roof restoration work?

A.         Yes, because Section 6(3)(b) requires it to pay all the landlord’s costs in keeping the roof in good repair

B.         No, because its Section 6(3)(b) duty to pay the costs of keeping the roof “in good repair” doesn’t include restoration work

C.         Yes, because in doing its own repair work, Ice Palace waived its right to challenge responsibility to pay for roof restoration

D.         No, because landlords have sole and exclusive control over roof restoration and improvement projects

ANSWER

B. Ice Palace isn’t liable because its duty to pay the landlord’s expenses for keeping the roof “in good repair” doesn’t cover roof restoration.

EXPLANATION

Language assigning responsibility of landlords and tenants for keeping the premises “in good repair” is a staple of commercial leases. This scenario, which is based on an actual California case called Dunpol Invs., Inc. v. Aliso Viejo Ice Palace, Inc, is a useful reminder of what the duty to keep “in good repair” does and doesn’t encompass [2023 Cal. App. Unpub. LEXIS 7741, 2023 WL 8912170].

Ice Palace’s obligation was to pay all of the landlord’s costs to “keep” the roof “in good order, condition and repair.” Citing Webster’s 3d New International Dictionary, the California appeals court noted that “keep” means to “preserve, maintain,” and that “maintain” means to “to keep in a state of repair, efficiency, or validity.” During the trial, Ice Palace presented expert testimony that the work the landlord’s contractor performed in installing the leak prevention membrane wasn’t a repair done on a discrete section of the roof, but a “re-cover,” which happens to be a subsection of a roof replacement under the 2019 California Building Standards Code. And nothing in the lease expressly required Ice Palace to replace the roof. So, B is the correct answer. 

WHY WRONG ANSWERS ARE WRONG

A is wrong because the duty to keep a roof or other part of the premises “in good repair” doesn’t include replacing or restoring the roof. The Ice Palace ruling also cites a 2005 case involving a similar clause requiring a tenant to pay to “maintain . . . the [roof] in good and safe condition,” which was found not to cover the cost of replacing the roof [ASP Properties Group, L.P. v. Fard, Inc., (2005) 133 Cal.App.4th 1257, 1268, 35 Cal. Rptr. 3d 343]. “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 or 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,” the ASP court reasoned.

C is wrong, although the landlord did contend that Ice Palace waived its right to contest liability for the roof restoration by repairing the roof on its own between 1994 and February 2021. But the court didn’t buy it. Handling necessary repairs doesn’t evidence a clear intention to pay for a roof restoration, the court reasoned. Besides, Ice Palace made it clear that it refused to pay for the membrane at least twice before the landlord’s contractor began the work.

D is wrong because while landlords generally prefer to maintain total control over roof replacement and other major tenant improvement projects involving building structure and systems, the parties can allocate control and responsibilities for those projects any way they want.

TAKEAWAY

Don’t rely on lease clauses requiring tenants to keep the property “in good order, condition or repair” to pass along the costs of restorations, replacements, and other capital improvements. If you want tenants to pay for these costs, you must negotiate for and include express lease language spelling this out.