Office Building by Thomas Brightbill
Commercial Leases: Rent Offsets
In a typical commercial lease, a landlord has the responsibility to maintain and repair the common areas and the structural elements of the building (i.e., the parking lot, roof, lobby, common bathrooms, etc.). Unfortunately, some landlords don’t honor these obligations as scrupulously as others. For example, when the parking lot is not plowed or is suffering from pot holes nearly the size of the Grand Canyon, or when the roof is leaking or the bathroom sink is out of commission, the first call most tenants make is to their landlord. But what happens when these calls are ignored and/or the repair is not timely made?
Common Mistakes When Dealing With Commercial Leases
A common mistake for a commercial tenant is to assume that it can simply withhold rent until the landlord honors its obligations under the lease. In other words, the thinking is that, “If the landlord isn’t going to fix this place, then I’m not going to pay rent.” Alternatively, more proactive tenants may simply perform the necessary work themselves (or hire their own contractor to do the work) and then assume they can deduct this amount from the next rental installment. Many tenants in these situations are surprised to find out that they can be evicted for their failure to pay the full amount of rent regardless of whether the landlord fulfills its maintenance and repair obligations.
This outcome is due to the fact that a tenant’s obligation to pay rent in a commercial lease context is generally considered to be an “independent covenant.” This means that the tenant must continue to pay rent regardless of whether the landlord is fulfilling its obligations under the lease (assuming the landlord’s failures do not rise to the level of being tantamount to a constructive eviction). Without an express right of setoff or termination option upon a landlord default, in many situations a tenant’s remedy is limited to performing the repair or maintenance and then suing the landlord in a separate court action for the costs incurred. As you can imagine, this is not a very attractive option for a tenant, especially in those cases where there are repeated defaults by the landlord.
Rent Offsets: Reduce Rent to Compensate for a Lack of Repairs or Maintenance
However, the good news is that some landlords are willing to negotiate some form of rent offset for failure to perform maintenance and repair obligations. Of course, the ability of any given tenant to successfully negotiate such a provision is always going to depend on the relative strength of the parties’ respective bargaining positions. A typical compromise can involve granting the tenant a right to offset rent under one or all of the following conditions:
- Written notice of the default must be provided to the landlord, along with an opportunity for the landlord to “cure” the default, within a certain number of days prior to the tenant taking action (except in emergency situations);
- A cap on the maximum amount of any such repairs that is eligible to be used to offset rent;
- Any proposed repairs or maintenance items must qualify as conditions that “materially and adversely” affect the tenant’s use of the premises in order to be eligible to be offset.
Obviously, a tenant will want to have as few restrictions on its ability to offset rent upon a landlord default as possible, while the landlord will want to define the conditions under which a tenant can offset rent as narrowly as possible.
The attorneys at Thompson Hall Santi Cerny & Dooley are experienced in the area of negotiating commercial leases on behalf of both landlords and tenants, and we would be happy to work with you regarding your commercial leasing issues.