Everybody knows the old saying: if you want something done right, you’ve got to do it yourself. But sometimes, if you’re dealing with a negligent landlord, getting anything done at all can be an uphill struggle – forget getting it done right. When this happens, your business could suffer catastrophic loss. Think about it. What would happen if a toilet line suddenly burst and your entire data center was submerged in an inch of water? What would you do if you call your landlord and he is sitting on boat somewhere fishing and his maintenance guy will get to it sometime tomorrow? You’d probably want to take care of it yourself and bill your landlord. Stop before you do this and read your lease. The problem is, most leases include specific provisions that call this out as what we call a “big D” Default – one that allows the landlord to claim serious remedies like fees and even lease termination. So what can you do to protect yourself? Great question. Here’s the answer.
The Self-Help Provision
It’s called a self-help provision, and it’s language that’s added to your lease that will allow you the freedom to make any emergency repairs that your landlord fails to make. It also ensures that you get reimbursed for your expenses. This sounds like a great arrangement, and it is – if you can get the landlord to agree to it. The fact is, the vast majority of commercial leases don’t include self-help provisions because landlords don’t like them. And they’ll fight you tooth and nail if you suggest it because the idea that a tenant may make repairs to a building terrifies a landlord, the only thing that bothers them more, is that the tenant might not pay rent to reimburse themselves for the cost of the repair.
Why Some Landlords Flake on their Duties
A lot of tenants have a false sense of confidence that their landlords will do the right thing. “I don’t need a self-help provision in my lease,” say some prospective commercial tenants, “because I can read people well enough to know that this landlord is on the up-and-up, after all, they are institutional quality and are responsive to my requests.” Maybe you can trust your intuition, maybe you can’t. But regardless, some landlords are not able to live up to their duties to make critical property repairs. Sometimes, it’s plain old circumstance. Let’s face it. The economy has taken the real estate business on a rollercoaster ride. As a result, there are many examples commercial landlords that are under financial distress, struggling to pay for expensive cap expenses like roof repair. To make ends meet, some have even made severe cutbacks on maintenance obligations that could prevent hazards like burst pipes from happening in the first place. All combined, this perfect storm of circumstances could render a landlord financially incapable of taking immediate action – even if he desperately wants to.
Getting Your Way
In order to boost your chances of getting a landlord to agree to the inclusion of a self-help provision in your lease, you’ve got to start early. As a potential tenant, you have the greatest amount of leverage early on in the leasing process when the landlord is still trying to win you over. For this reason, don’t be shy about mentioning a self-help provision at the outset. Instead, have your commercial real estate broker add specific mention of it in the initial letter of intent. Your broker should also issue an RFP with a breakdown on what you’re requesting, and why it’s important to your leasing decision. This will give the landlord plenty of time to wrap their minds around the idea that without agreeing to a self-help provision, they may lose your business.
Dotting Your I’s and Crossing Your T’s
Sit down with your real estate broker and have a long conversation about what should be included in your self-help provision. Make sure that the language that’s added to your letter of intent, RFP, and lease includes the following critical requirements:
- You will only take care of an emergency situation if the landlord is unable to respond to within a reasonable period of time. Establish that time frame explicitly and don’t jump the gun on taking action, otherwise it could cost you.
- The landlord will pay for all repair costs, including labor, materials, rental charges, and other associated costs.
- You will have the right to offset your monthly lease payments to recoup all expenses within a reasonable length of time. Specify the timeframe so the landlord doesn’t assume that you’re agreeing to some arbitrary five-year repayment plan.
- If offsetting the cost of rent isn’t acceptable to the landlord and he prefers to reimburse you directly, you will have the right to charge interest if the full amount isn’t paid back to you within a specified period of time.
As always, it’s a good idea to get your lawyer involved in the writing up your self-help provision. Frankly, you will likely not make much progress with a landlord without an experienced real estate attorney or a savvy broker as an advocate for you. Contract laws vary from state to state, and even though most courts will defer to what’s expressly agreed to in a lease, it’s important to have someone looking over your shoulder who knows the law inside and out.
True Stories and Cautionary Tales
In 2009, a Burlington Coat Factory location took action and completely replaced the leaky rooftop of a building it was leasing. This came after repeated unanswered requests asking for the landlord to take care of repairs. Although you’d think this would be an open-and-shut case, Burlington Coat Factory was found in court to have had the rooftop improperly replaced – ruining any chances it had of suing the landlord for reimbursement. This cautionary tale serves as a reminder for two important points: always have a self-help provision in place before making any repairs, and always be certain that the right kind of repairs are made.
If you have a critical component to your operation in someone else’s building, make sure that you can help yourself in the instance that a catastrophe occurs.