Negotiating a Landlord Warranty in a Commercial Lease
When entering into a commercial lease, one of the key considerations for a tenant is the condition of the leased premises. In most cases, the tenant takes the premises in its “as-is” condition upon delivery, meaning that defects or issues with the space may become the tenant’s responsibility to address based on the repair and maintenance obligations set forth in the lease.
To protect themselves against receiving the space with broken fixtures, or non-functioning building systems, savvy tenants often seek to negotiate a landlord warranty to ensure that certain essential elements of the premises are delivered in good working order or if not, that they be repaired or replaced by the landlord at the landlord’s expense. This article explores what a landlord warranty is, why it is important, and how tenants can approach negotiations to secure one that protects their interests.
The “As-Is” Nature of Most Commercial Leases
In most commercial leases, landlords deliver the premises to the tenant in an “as-is” condition. This means that the tenant agrees to accept the space in its existing state, without any guarantees from the landlord that the systems, structures, or components of the premises are in good working order. If a problem arises—whether it’s a malfunctioning HVAC system, faulty plumbing, or electrical issues—the tenant is typically responsible for addressing it, unless the lease states otherwise.
The repair and maintenance obligations in a lease usually define which party is responsible for fixing different aspects of the property. As a result, in many cases, absent a landlord warranty, the tenant may be on the hook for repairing or replacing defective items, even if those items were already in poor condition when the premises were delivered to the tenant. Major systems such as HVAC, plumbing, and electrical systems can be costly to repair, and if these systems fail shortly after lease commencement, the financial burden falls on the tenant. This is why negotiating a landlord warranty can be so important.
What is a Landlord Warranty?
A landlord warranty is a provision in the lease designed to ensure that certain components of the premises will be delivered in good working order, or if they are not, that they will be repaired or replaced by the landlord at the landlord’s expense. These warranties often cover critical systems that are essential to the tenant’s use of the space, such as:
– Mechanical Systems: Heating, ventilation, and air conditioning (HVAC) systems.
– Electrical Systems: The building’s electrical infrastructure, wiring, and circuit breakers.
– Plumbing Systems: Pipes, drains, water supply, and sewage systems.
– Other Elements: In some cases, specific items relevant to the tenant’s business, such as dock doors in industrial spaces, elevators, or specialized equipment, may also be covered.
If a landlord warranty is negotiated, the landlord agrees to repair or replace any defects in these systems, typically at the landlord’s cost, if the defects are discovered during the warranty period and are not caused by the tenant’s misuse or negligence.
Scope of the Warranty
The scope of the landlord warranty can vary depending on the type of property and the bargaining power of the tenant. In general, the warranty covers items that are critical to the tenant’s use of the premises but that are difficult or costly for the tenant to inspect or test prior to moving in.
In most cases, tenants negotiate for a warranty on the building’s mechanical, electrical, and plumbing systems, often referred to as MEP systems. In specific scenarios, the warranty might extend to other elements such as dock doors, elevators, or certain structural components of the building, depending on the tenant’s particular needs and the extent to which the tenant is otherwise assuming responsibility for these items under the lease.
Time Limits on the Warranty
One of the critical aspects of negotiating a landlord warranty is the timeframe during which the warranty applies. While some tenants might seek an open-ended warranty, failing to specify the period to which the warranty relates can make enforcing the warranty challenging as it quickly becomes murky as to whether a particular repair should be subject to the warranty or governed by the general repair and maintenance provisions of the lease. For this reason, most landlords will insist on a defined period during which the warranty remains in effect. This period, often referred to as the “warranty period,” is typically limited to a few months following the lease commencement date.
Commonly, warranty periods range from as short as 30 days to as long as a year. During this time, if the tenant identifies any issues with the covered systems, the landlord is obligated to repair or replace the defective items at the landlord’s expense, as long as the problem was not caused by the tenant. After this warranty period expires, the responsibility for maintaining and repairing those items will be governed by the applicable repair and maintenance sections of the lease.
Special Considerations for Seasonal Systems
When negotiating the time frame for a landlord warranty, tenants should consider whether certain systems may not be in use during the initial months of the lease. For example, if the lease commences in the winter, the tenant may not have the opportunity to test the HVAC’s cooling function until several months later. In these cases, tenants may request that the warranty period for those specific systems be extended to cover the period when they will first be used.
Negotiating a Landlord Warranty
Successfully negotiating a landlord warranty requires careful attention to several factors:
1. Clearly Define Covered Systems: The warranty should clearly identify which systems are covered, such as HVAC, electrical, plumbing, and any other components critical to the tenant’s use of the space. Avoid vague or overly broad language, which could lead to disputes over what is included in the warranty.
2. Specify the Length of the Warranty Period: Negotiate a warranty period that gives the tenant adequate time to discover any defects. If certain systems will not be used immediately, consider requesting an extension of the warranty for those specific items.
3. Condition of the Systems: Some landlords may resist offering a warranty if the systems in question are older or nearing the end of their useful life. In these cases, tenants might request that the landlord perform maintenance or replace the system prior to the lease commencing as part of the deal.
4. Landlord’s Obligation to Repair: Ensure that the lease specifies that the landlord is responsible for the cost of repairing or replacing any defective systems covered by the warranty, as long as the defect is not caused by tenant misuse. Additionally, the lease should outline the process for notifying the landlord of any issues and the timeline for completing the necessary repairs.
Additional Considerations
While a landlord warranty provides tenants with important protections, it is also critical for tenants to consider the broader repair and maintenance obligations in the lease. Once the warranty period ends, these provisions will govern the parties’ responsibilities for repairing and maintaining the premises. Tenants should carefully review these sections to ensure they are not taking on undue responsibility for costly repairs.
Conclusion
A landlord warranty can be a valuable tool for commercial tenants, providing protection against unexpected repair costs and ensuring that key building systems are delivered in good working order. By carefully negotiating the scope, timeframe, and terms of the warranty, tenants can safeguard their interests and avoid costly repairs during the early stages of their lease. For landlords, offering a well-defined warranty can help attract quality tenants and establish a positive relationship from the outset. Both parties should approach these negotiations with a clear understanding of their rights and responsibilities to create a balanced and fair lease agreement.
