Are You Protecting Yourself Through Your Lease Agreements?
Without extrinsic factors altering the situation, generally only the people in possession and control of a property are liable for its negligent maintenance. Most often, the lessee who is in possession is liable for injuries sustained by third-parties and caused by a failure to keep the property in good repair.
This is usual in most cases, since a lease is traditionally a conveyance of property which ends a lessor’s control over the premises (for an interesting article on the evolution from leases as property interests to more contractual arrangements, see Orth, John, “Leases: Like Any Other Contract”, Green Bag, Autumn 2008).
However, in the recent opinion of Fan v. Auster Company, Inc. et al (1st Dist. Doc. No. 1-07-2604) ambiguity in the language of a lease has created confusion that could be detrimental to an otherwise protected landlord.
You don’t need to consult the Manual of Style for Contract Drafting to know that ambiguity can cause uncertainty in a contract and that sometimes more particularity is required in your agreements – although Ken Adams has written plenty of informative posts about the topic.
The Fan case raises some interesting issues and is worth the read. Pertinent to our discussion about lease language, the facts of the case are that a worker was killed after he fell into an open elevator shaft. His widow sued and the case was dismissed by the trial court which found that the lessor of the building had no duty to repair the defects in the elevator that caused the fall because it had no obligation under the lease to do so. The widow appealed.
The lease agreement between the lessor and the lessee said that the lessor was “solely responsible” for maintaining the “structural elements” of the premises and that the lessee was responsible for keeping nonstructural elements “in good repair.”
“Paragraph 14 of the primary lease was entitled “Repairs and Maintenance,” and it described the lessee and the lessor’s respective obligations for both “non-structural” elements and “structural elements.” It stated, in full, as follows:
“A. Lesee shall keep all non-structural portions of the Leased Premises and appurtenances thereto in a clean, sightly and healthy condition, and shall maintain all portions of the Leased Premises (except to the extent the Lessor is obligated to maintain the same, as provided in Section 14.B) in good repair, all according to the statutes and ordinances in such cases made and provided, and the directions of public officers thereunto duly authorized, all at its own expense, and shall yield the same back to Lessor upon the termination of this Lease, whether such termination shall occur by expiration of the term, or in any other manner whatsoever, in the same condition of cleanliness, repair and sightliness as at the date of the execution hereof, loss by insured casualty and reasonable wear and tear excepted. Lessee shall make all necessary non-structural repairs and renewals upon Leased Premises and shall replace broken globes, glass and fixtures with material of the same size and quality as that broken.
“B. Lessor shall be solely responsible, at Lessor’s sole cost and expense, to maintain the roof, foundation and structural elements of the building in which the Leased Premises is located. Notwithstanding the foregoing, Lessee covenants, throughout the term of this Lease, to take good care of all portions of the Leased Premises’ interior and exterior, structural and non-structural, including without limitation, all gas, electric and plumbing fixtures, systems or equipment, other equipment and/or fixtures located upon the Leased Premises, motors, machinery, roof, ceiling and parking lot, and shall promptly repair at Lessee’s sole cost and expense, any damages to the Leased Premises or the building in which the Leased Premises is located, which is caused by Lessee or Lessee’s agents, representatives or contractors. The term ’repairs’ shall include replacements or renewals when necessary, and all such repairs made be Lessee shall be equal in quality and class to the original work and/or item being repaired. At the termination of this Lease, Lessee shall surrender the Leased Premises in the same condition as when received, reasonable wear and tear excepted.”
While the parties to the case had not addressed the issue in their briefs, the Court held that there was an actual issue as to whether or not the cause of the accident was or was not “structural,” e.g. that the failure to have a sliding – interlocking – mechanism in front of the shaft was a “structural” defect. The appellate court remanded the case for a determination regarding whether the cause of the accident fit the definition.
You can see in the language that the lessor’s obligation in Paragraph 14(B) starts to enumerate things like the roof, the foundation and then includes “structural elements,” rather than continuing to define the elements, or than having a “definitions” section at the beginning of the agreement that would elaborate on such a term. If the term were defined, the lessor may have avoided liability (or it could have kept the original summary judgment from happening.) In any event, the lesson is to keep an eye on your contract terminology and make sure the terms you’re using have the meaning and specificity you intend, without ambiguity.
Of note to practitioners is a portion of the opinion in which the court upheld the contractual obligations of the handwritten language “The Lessee assumes all payment and performance terms of the lease attached hereto. In the event, there is an inconsistency between this and the attached, the attached shall control” which had been added as an afterthought to a sublease – and which made all the difference in this matter by enforcing the terms of the original lease against the sublessor.
