§ 10.04 Repairs Necessitated by Preexisting Conditions

• Jurisdiction: United States
• Publication year: 2022

§ 10.04 Repairs Necessitated by Preexisting Conditions

[1]—During Initial Tenant's Work

Initial tenant work within the demised premises will generally include the demolition of existing alterations. In the course of its work, the tenant may encounter certain field conditions in the building that will require either special changes, accommodation or construction permits. These preexisting conditions may necessitate repair work to make the premises fit to conduct the tenant's business.

The easiest method of dealing with possible repairs necessitated by preexisting conditions that are discovered during initial alterations is to have the landlord represent that the demised premises are in a condition that is free of violations and hazardous materials and otherwise ready to receive permits drawn by the tenant in order to conduct its initial alterations. It would be appropriate for the tenant to obtain an indemnity from the landlord for any increase in costs, delays, erosion of the abatement period and impacts on construction contracts with regard to preexisting conditions impacting on the initial alterations.

The condition of the demised premises with respect to building systems and structural repair prior to the commencement of the tenant's work should also be carefully described in order to avoid additional work by the tenant at the tenant's cost when such work should have been completed beforehand. It would be appropriate for the tenant to obtain from the landlord a representation of the existing condition of the building structure, the shell of the demised premises, the building systems and the delivery location to the premises before accepting the premises to do initial alterations. The following example illustrates the importance of such representations.

A beauty salon tenant in a luxury Manhattan building planned to put a cutting edge installation in the lower office portion of the tower and needed a considerable amount of plumbing to accommodate the different hair dressing stations. The plans of the building shell presented by the landlord's agent reflected electrical, HVAC, water and waste pipe service to the points located on the plans for tie in and distribution throughout the demised premises. The location for water service was depicted in one corner of the floor within riser walls. The tenant's contractor properly laid out the premises and set up the water piping and systems for that point of distribution. Well into the construction process when the wall was opened up to tie in to the water distribution system, it was discovered that the building shell plans were incorrect and the water source was at the opposite end of the floor. Numerous proposals for dealing with this were brought forward by the landlord and the tenant's contractor resulting in much delay of time and lost operations. The ultimate solution, weighing both cost and time, was to raise the floor for most of the premises and run the water pipes to the point where the distribution was set up at the other end of the floor. The high costs and the attendant delays were ultimately borne by the building owner since the plans and service representations were made a part of the lease at execution. Had that not been the case, the risk and additional costs would have been fully borne by the tenant. The cost and delays were of a magnitude to have probably proved deadly to the venture.

[2]—Future Repairs

Once a tenant has moved into the premises and the initial alterations have been concluded, it is the authors' belief that the premises should at that point be violation free and in compliance with all laws. However, it is common for the building inspector who inspects the plans and the actual final construction of the premises to find violations or noncomplying work. This can be due to either a failure to spot the problem in the initial inspection, a change in the law or a subsequent minor alteration to existing improvements. In addition, future work within the premises may have an unanticipated impact both on building violations and the ability to obtain construction permits. Allocation of responsibility and timing to deal with these subsequent violations and their impact on tenant's repairs, maintenance or alterations should be dealt with specifically in advance in any lease. Tenants should not undertake obligations for repair with respect to preexisting violation conditions or latent defects.

The following example contains representative language for the condition of the delivery of the premises. This clause deals with preexisting conditions, violations, hazardous materials and the delivery condition definition.

Example 2:

Section 10.04. Notwithstanding anything contained in this Lease to the contrary: (a) any asbestos or asbestos-containing material or any other material which, as of the date of the delivery of the Demised Premises to Tenant in the Delivery Condition (hereinafter defined in Section 20.04 of the Lease) or as of any later date that the same was introduced by the Landlord into the Building, is or was deemed hazardous pursuant to then applicable Legal Requirements and at the time the same is discovered in the Demised Premises (other than if incorporated into the Demised Premises by Tenant as part of Tenant's Work or otherwise, in which event, Tenant shall, at Tenant's expense, remove the same) shall, if required by law, be removed by Landlord at Landlord's expense, and (b) except as otherwise provided in clause (a), any material incorporated in the Demises Premises which, as of or after the date of this Lease, is found to be hazardous pursuant to applicable Legal Requirements, if required by law, shall be removed by Tenant at Tenant's expense. Annually, Landlord shall perform a test of all domestic (i.e., non-equipment/HVAC related) water supplied to the Demised Premises and, at Tenant's request, shall provide Tenant with a copy of the results of such test; provided, however, in the event Landlord performs a test of the water supplied to the HVAC equipment in the Demised Premises then, at Tenant's request, Tenant shall provide Tenant with a copy of the results of such test. If, in accordance with subsection (a) above, any material is removed by Landlord at Landlord's expense, Landlord shall also be responsible for any additional costs incurred by Tenant arising out of reconstruction of Tenant Work caused by such removals.

Section 10.05. Notwithstanding the provisions of Section 10.01 above, Landlord, at Landlord's expense, shall cure (a) all violations of Legal Requirements existing with respect to the Demised Premises as of the date of delivery of the Demised Premises to Tenant in the Delivery Condition and (b) provided the same were not caused by Tenant, all violations of Legal Requirements applicable on such delivery date filed on or prior to January 1, 1998 with respect to the Demised Premises and arising out of a preexisting condition that existed before such delivery date.

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Section 20.04. "Delivery Condition" means that Landlord shall delivery the Demised Premises in a condition free of any Hazardous Materials or non-compliance with Legal Requirements which prevent or delay (1) Tenant's performance of Tenant's Work to initially prepare the Demised Premises for initial occupancy, or (ii) Tenant's filing of plans and specifications with respect thereto, or (iii) Tenant's obtaining permits (building or otherwise) from any Governmental Authority by Tenant in connection with such initial Tenant's Work.

Within delivery condition clauses, conditions should be subdivided into those dealing with: (1) preexisting conditions; (2) subsequently occurring conditions; (3) conditions that constitute violations, but have not yet been discovered; (4) conditions that are violations and are recorded as such; (5) conditions resulting from acts of the landlord or previous tenants; and (6) conditions that are created by the existing tenant. It is also important to differentiate between costs to cure these problems, the delays or impacts on the preparation of the premises and the erosion of abatement periods relating to construction.

[3]—Hazardous Materials—Risks and Remediation

[a]—Allocating Risk and Remediation Obligations¹

Federal and state statutes impose certain liabilities on owners and operators of real property when hazardous substances have been deposited, stored, or released on the property. "Hazardous Substances" are broadly defined to include a wide array of chemicals and compounds, as well as medical waste, which can include radioactive materials. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),² along with the Superfund Amendment and Reauthorization Act of 1986 (SARA)³ are the major source of liability facing a landlord. The CERCLA statute is so broad that a responsible party can be almost anyone who has had contact with the property.⁴ The owner of property is the first mentioned.

When dealing with an office lease, it is important not to overlook potential environmental hazards.⁵ But how can an office come under the statutory oversight of CERLA and SARA? Generally when thinking about hazardous materials, one thinks of a factory belching smoke into the atmosphere, with toxic chemicals flowing through a conduit into an adjoining river. However, it is not only the owners of large industrial properties who need to be concerned about hazardous materials and waste. Even the local mall or shopping center has potential problems related to hazardous materials. Automobile repair shops, photocopy/print shops, dry cleaners, and doctors' offices and medical labs all use and dispose of hazardous materials on a regular basis. Few people even give a thought to the potential dangers. Hazardous waste and its disposal are even less likely to be considered in the context of an office building.

Often offices are used for more than just a traditional white-collar business operation. A computer firm that builds...