Potential Property Pitfalls at Lease Renewal Time

About to renew your lease? Avoid these pitfalls.

Repair and Maintenance

Barry R. Katz

Barry R. Katz is a partner with the Chicago law firm of Arnstein & Lehr LLP. He focuses his practice in the areas of real estate and corporate law. He represents, lenders, corporations with real estate needs, real estate entrepreneurs, condominium associations, not for profit corporations and management companies located both in the Chicago area and nationwide with respect to the acquisition, sale, financing, work-out and operation and management of real estate. He can be reached at brkatz@arnstein.com.

If you are about to renew your lease, you should take inventory of what areas of repair and maintenance have exceeded your budget and are necessary.  If these costs are excessive, at the time of renewal make it a condition of renewal to shift responsibility for areas of repair that are historically costly to you.  In most leases a landlord imposes virtually all expenses of operating, maintaining and repairing the premises upon a tenant, including the responsibility to repair and maintain the HVAC, electrical and plumbing systems, all fixtures and equipment, and replacement of light bulbs.  As a rule of thumb, the longer the lease, the more responsibility a tenant has for repair and maintenance.

Attempt to limit your repair and maintenance responsibility to systems (electrical and plumbing) within the premises.  Also, request that landlord be responsible for major repair or replacement of the HVAC system (such as the need for a new compressor).

Depending upon your space needs, this may be the time to consider the possibility of subleasing a portion of the premises.  Typically, a lease provides for consent of the landlord prior to sublease to a third party.  These provisions will have specific notice provisions with the need to provide specific information for the subtenant.  Be familiar with this provision so as to not waive any rights.

Tenant Improvements Prior to Commencement of Renewal of the Lease
If you’ve been in premises for an initial term of 5-10 years or more, do not be hesitant to request improvements before exercise of a renewal.  Even cosmetic improvements such as repainting office areas and warehouses, new ceiling tiles and carpet, etc. can pass along a positive impression to employees and guests.  Make sure to receive a warranty for the work for a one to two year period after the commencement of the renewal term.

Use Your Attorney
Finally, prior to renewal of a lease contact your attorney and request a  thorough review of the lease.  Ask your attorney to identify which party – landlord or tenant – pays for specific items of repair and maintenance.  There are many items that may not be addressed in a lease or improperly shift the responsibility for costs upon the tenant that should be a landlord’s responsibility. 

This author was involved in such a situation recently.  A sewer pipe located outside the premises leased by a client, but serving the premises, burst and required immediate repair.  The lease was silent on which party should pay, the result being landlord and tenant may need to litigate the issue.  Meanwhile, the tenant needed a working sewer pipe and was forced to spend over $50,000 to repair the problem.  Use the renewal of a lease as an opportunity to anticipate potential issues and clarify costs and responsibility.

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