April 08, 2016

What Constitutes Acceptable "Wear And Tear" in a Commercial Lease?

Terminating a commercial lease? You’re likely to encounter the question of whether the surrendered premises are in the condition required pursuant to the lease terms. Commercial leases often require the rental premises to be surrendered in the same condition as when originally leased, normal wear and tear excepted. Unfortunately “normal wear and tear” is one of the most commonly used and least understood phrases in a standard commercial lease.

The definition of “normal wear and tear” varies from state to state, and as most cases are fact specific the courts can provide only general guidance. “Normal wear and tear” generally means “a gradual deterioration in condition resulting from appropriate use over time, assuming routine maintenance was performed.” Based on this definition, here are four actions a contracting party can take to ensure that lease termination does not result in lease litigation:

1. Document the Condition of the Premises at the Beginning of the Lease

Proving either — as landlord — that your damages exceed normal deterioration or — as tenant — that you have complied with your maintenance obligations requires evidence of the original condition of the premises. Prior to taking possession, document the condition of the premises — all of the premises, including equipment and fixtures.

2. Review the Lease Terms Carefully Regarding Representations About the Condition of the Premises

Most leases contain pages of boilerplate or standard language relating to the parties’ obligations. One of the most common sentences is “Tenant’s taking possession of the Premises shall be conclusive evidence of receipt thereof in good order and repair.” In a case decided in Indiana in February 2016, the court stated that that boilerplate statement of condition was sufficient for the court to conclude that the premises were in good condition at lease commencement, despite the fact that the plaintiff was unable to provide any evidence in support.[1] As a result, a tenant who accepts a lease containing a description of the premises is likely going to be stuck with that description as the starting point for any discussion of “ordinary wear and tear.” Conversely, that can be an attractive consideration for a landlord. Under any circumstance, review what the lease says about the conditions of the premises before executing the lease.

3. Retain Copies of All Maintenance Records

In some states “normal wear and tear” assumes that the tenant is responsible for performing all necessary, routine maintenance as it becomes due. If a tenant fails to retain maintenance records and cannot demonstrate that routine maintenance was performed as needed, it will be that much easier for a landlord to argue that any deterioration is beyond what is considered to be normal wear and tear.

4. Identify Which Party Is Responsible for Specific Repairs

Simply stating that the premises must be returned to pre-leasing condition ordinary wear and tear excepted is not sufficient to identify the maintenance and repair obligations of the parties. For example, if a tenant is not liable for ordinary wear and tear does it still have to paint the premises at the termination of the lease? What if the lease term was one year versus 20 years? Is the landlord responsible for structural repairs, and what is included in the term structural repairs? The more you clarify the respective obligations of the parties and your understanding of what is included in “normal wear and tear,” the less likely you are to end up in litigation.

Reviewing and understanding provisions and representations concerning the condition of premises, taking steps to document the condition of the premises in a lease and defining the parties’ respective responsibilities in this area are important factors in avoiding litigation. An ounce of proactive attention to these issues can save pounds of costs and inconvenience at lease termination.

[1] Anthony Wayne Corp. v. Elco Fastening, Systems, LLC, 2016 WL 687887 (N.D. Ind. 2016); cf. Bobeck Real Estate Company, Inc. v. Frontier North, Inc., 120 F.Supp.3d 845 (N.D. Ind. 2015)(absent proof of condition of premises at lease commencement the tenant could not be liable for failing to return the premises to as good a condition as at lease commencement.)

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