SC Lawyer, July 2010, #3. What You Don't Say Can Hurt You: The Duty of Repair and Maintenance in the Commercial Setting.

• Author: By David K. Haller and Matthew E. Pecoy

South Carolina Lawyer

2010.

SC Lawyer, July 2010, #3.

What You Don't Say Can Hurt You: The Duty of Repair and Maintenance in the Commercial Setting

South Carolina LawyerJuly 2010What You Don't Say Can Hurt You: The Duty of Repair and Maintenance in the Commercial SettingBy David K. Haller and Matthew E. PecoyThe phrase, "What you don't say can't hurt you," is often a prudent guidepost in the practice of law. Especially when considered in relation to the commercial landlord's duty of repair and maintenance, silence in a lease agreement may be golden. At common law, there is no duty of a landlord to maintain or repair leased premises absent a contractual obligation. Further, the warranty of fitness and habitability, that is, to keep the premises in the condition for which it was leased, is not imparted on the commercial landlord in the same way it is statutorily mandated to his residential counterpart. Once the door is opened and the duty of repair and maintenance is drafted into a commercial lease agreement, however, certain pitfalls await the landlord and his counsel. This article examines the duty of repair and maintenance in the commercial setting and outlines areas the practitioner should be aware of in representing either the landlord or tenant in a commercial lease agreement.

The duty of repair and maintenance in a commercial lease relationship

As noted above, there is no general duty of a commercial landlord to repair, maintain or ensure the tenantability in a commercial setting. South Carolina courts have routinely noted, "absent an express agreement, a landlord in South Carolina has no obligation to maintain commercial leased property in good repair because South Carolina law does not recognize an implied warranty of fitness or habitability in a commercial lease." Brendle's Stores, Inc.v. OTR, 978 F.2d 150, 154 (4th Cir. 1992) (citing Edwards, Inc. v. Arlen Realty & Dev. Corp., 466 F. Supp. 505, 509 (D.S.C. 1978)).

Importantly, the lack of a warranty of habitability between a commercial landlord and tenant is contrary to that which exists in the residential setting. See S.C. Code Ann. § 27-40-440 (2009). In the residential setting, as a matter of public policy, the landlord is obligated to maintain the leased premises in a fit and habitable condition and the tenant is given established rights on the failure of the landlord to do so after notice. Id. However, except in the circumstance of constructive eviction, these obligations and rights are not imparted on the commercial landlord by statute or common law.

In the commercial setting, the law views the landlord and the tenant as generally being on equal footing-two businesspeople engaged in an arms length transaction, exchanging a place to conduct one's business for consideration. Thus, the relationship between the commercial landlord and his tenant is contractual. If a commercial lease agreement is silent about who is responsible for the maintenance and repair of the leased premises, the commercial tenant cannot rely on any implied obligations on the landlord to remedy problems or to otherwise maintain the premises. In other words, the tenant will generally have to shoulder the burden.

Commercial lease agreements as contracts

In their most basic form, lease agreements, both commercial and residential, are construed in the same manner as contracts:

The terms of a lease, like the terms of any contract, are construed to achieve the intent of the parties at the time the lease was entered into. The courts must construe and enforce contracts as written, in order to preserve the fundamental right of freedom of contract, unless the contract would violate the law or is contrary to public policy.S.C. Dep't of Transp. v. M & T Enters. of Mt. Pleasant, LLC, 379 S.C. 645, 656 (Ct. App. 2008) (citing Lexington Ins. Co. v. Tires Into Recycled Energy and Supplies, Inc., 522 S.E.2d 798, 800 (N.C. Ct. App. 1999)). When a South Carolina court interprets a disputed commercial lease, it will endeavor to "ascertain and give the effect to the intention of the parties." United Dominion Realty Trust, Inc. v. Wal-Mart Stores, Inc., 307 S.C. 102, 105 (Ct. App. 1992)(citing Chan v. Thompson, 302 S.C. 285, 289 (Ct. App. 1990)). Therefore, if the drafter of a commercial lease uses language that is clear and unambiguous, the language alone will determine the contract's force. See id. (citing Connor v. Alvarez, 285 S.C. 97, 101 (1985)). Furthermore, a South Carolina court must enforce a clear and unambiguous commercial lease by its terms, "regardless of its wisdom or folly, apparent unreasonableness, or the parties failure to guard their rights carefully." See S.C. Dep't of Transp., 379 S.C. at 655 (citing Lindsay v. Lindsay, 328 S.C. 329, 340 (Ct. App. 1997)). Most importantly, as will be demonstrated below, where the terms of a lease are silent, the common law is controlling. See, "the common law will control only when the terms of the contract are silent." id. at 659 (stating that the common law controls when a commercial lease is silent concerning the allocation of a condemnation award).

Because commercial lease agreements are usually drafted by the lessor and because a South Carolina court will resolve any ambiguities against the drafting party, the lessor's lawyer should be diligent in avoiding broad language and scoping the terms of the lease agreement with particularity. See S. Atl. Fin. Servs., Inc. v. Donna F. Middleton, 356 S.C. 444, 447 (2003) ("Ambiguous language in a contract, however, should be construed liberally and interpreted strongly in favor of the non-drafting party.") Multiple clauses that touch on the same topic areas, if placed in different areas of the lease agreement, should be avoided. If not, a court may construe the different sections as ambiguous on the overall intentions of the parties. As a result, the lease would be construed against the landlord. Thus, if the original intention was for a limited obligation to repair, with no right of the tenant to surrender the premises, the presence of contrasting or competing clauses in different paragraphs or sections of the lease may render it ambiguous. In contrast, a practitioner representing the lessee's interests should be conscientious in ensuring that any of the lessee's concerns are adequately addressed explicitly in the lease.

Representing the commercial landlord's interests

The presumption that the commercial tenant assumes the duty to repair and maintain the premises absent an express provision to the contrary in the lease agreement is of great significance to the practitioner on either side of the lease agreement. For the practitioner representing the commercial lessor, a two-step process clearly emerges-first, whether to include any duty to repair or maintain the leased premises in the lease agreement; second, what the duty's scope will be. In defining the commercial lessor's duty of repair and maintenance, the practitioner should specifically address the manner in which notice must be given for the duty to begin. The portions of the building to which the landlord's duty applies should be outlined in detail, such as the structure, concealed systems (e.g., plumbing, electrical, heating and/or air conditioning), common areas and the building's interior structure. Furthermore, the practitioner acting on the landlord's behalf in drafting a commercial lease agreement may limit this duty by excluding any repairs that may result from a defective condition related to the premises or negligent acts of the tenants, its agents, employees or visitors. A residual, catch-all clause may be included to place any duty to maintain and repair the premises not expressly provided for in the agreement on the tenant or to limit the amount the landlord is obligated to expend.

The drafter should be careful when using language with specific legal effect, such as the words "fitness," "habitability" or "tenantability." These words may be interpreted by a court as an overall duty of fitness or habitability on the landlord. This can be specifically tricky when a boilerplate lease is used. The fitness needs for an accounting office may be vastly different than a medical facility, even if they are located in the same building or next door.

Representing the commercial tenant's interests

In representing the tenant's interests, a practitioner should, first and foremost, ensure that a warranty of tenantability or similar duty of repair is included in the commercial lease agreement (or else be aware that any duties of repair and maintenance will be the lessee's responsibility). If such a duty is included, the obligations will generally be divided between the lessor and lessee. Costly repairs such as roof, exterior walls, systems and other structural repairs might not be economically feasible for a lessee (particularly a short term lessee). Therefore, a practitioner may negotiate a clause in the commercial lease that establishes a ceiling that a lessee would be required to expend for repairs and maintenance over a given time period. Another method of dealing with this allocation of duties is to state specifically the division of responsibility between the landlord and tenant. Furthermore, the lessee should not be responsible for any repairs or maintenance that are not the result of the lessee's use or occupancy of the premises. The practitioner should also ensure that, if the lessor is required to handle certain repairs and maintenance, a provision is included prescribing a reasonable amount of time in which the repair or maintenance work should be completed. A tenant may also consider a clause allowing for termination of the lease if repairs are not made. Lastly, whether representing the commercial landlord or tenant, the practitioner should review the commercial lease section by section to make sure that the repair and maintenance provisions do not contradict other provisions of the lease and create unintended liability for either party.

Related issues

Constructive eviction

Whether to excuse the nonpayment of rent or to simply get out of a lease, lessees frequently assert the common law affirmative defense of constructive eviction when accused of breaching a lease agreement. Under South Carolina law, a tenant must meet two requirements to successfully prove this affirmative defense: "(1) the tenant must be deprived of possession by the landlord's intentional act or omission or that act or omission must interfere substantially with the tenant's use or enjoyment of the leased property; and (2) the tenant must abandon the Premises as a result of the landlord's act or omission." Brendle's Stores, Inc., 978 F.2d at 154. However, in S.C. Department of Transportation v. M & T Enterprises of Mt. Pleasant, LLC, 379 S.C. 645 (Ct. App. 2008), the S.C. Court of Appeals stated that the common law can only serve as a gap-filler in contract interpretation and that a court must enforce a contract according to its unambiguous terms. Because lease agreements are construed as contracts and analyzed by the rules of contract interpretation, a commercial lessor may be able to overcome the affirmative defense of constructive eviction if certain requirements are met.

The starting point in the analysis is that a commercial lessee should not have any basis for a constructive eviction argument in South Carolina unless the duty to repair and maintain was specifically contracted for with the lessor. Brendle's Stores, Inc., 978 F.2d at 154. Thus, without an express provision of repair, no duty to maintain commercially leased property in good repair runs from the commercial lessor to the lessee, and the lessee may be foreclosed from asserting constructive eviction. Even if the lessee specifically contracted with the commercial lessor for some duty to repair, however, the constructive eviction affirmative defense may still be overcome. Because S.C. Department of Transportation holds that the common law may only serve as a gap-filler in contract interpretation and that a court must enforce a contract according to its unambiguous terms, the diligent practitioner representing the commercial lessor, by writing into the lease agreement certain provisions that address the issue of damages to the premises, may close the door on the lessee's ability to use the defense. Consider the following model of a damage to the premises provision that may be included in a commercial lease:

Except as otherwise specifically provided herein, damage to or destruction of any portion or all of the buildings, structures and fixtures upon the Premises, by fire, the elements or any other cause whatsoever, whether with or without fault on part of the Tenant, shall not terminate the lease or entitle the Tenant to surrender the Premises or entitle Tenant to any abatement or reduction of rent payable. Because such a provision unambiguously and directly addresses the issue of damage to the premises and the remedy available to the lessee, the lessee's ability to excuse the non-payment of rent with the constructive eviction affirmative defense may be foreclosed. Constructive eviction is rooted in the common law, and the common law may not supersede any explicit provision voluntarily agreed to in the lease agreement.

Unfair Trade Practices Act claims and the duty of repair and maintenance

As a final consideration, it is an open question in South Carolina whether an aggrieved lessee, based on allegations that the lessor failed to respond and remedy any properly noticed problems to the premises, may bring an Unfair Trade Practices Act claim. See generally S.C. Code Ann. § 39-5-10 to -560 (2009). In Burbach v. Investors Management Corp. Int.'l, 326 S.C. 492 (Ct. App. 1997), the Court of Appeals held that the South Carolina Unfair Trade Practices Act applied to leases in an action involving a residential landlord and tenant. That case involved not just leases, however, but the duties of landlords under the South Carolina Residential Landlord Tenant Act (SCRLTA). Again, the duties of repair found in the SCRLTA do not apply in the commercial setting. Nevertheless, a practitioner should take steps to prevent his commercial lessor client from becoming the litmus test for the issue until this question is further defined. For example, the lessor should be advised to provide timely responses to all tenant inquiries concerning damage or maintenance to the premises and to otherwise comply with the lessor's warranty of tenantability outlined in the lease agreement.

Conclusion

While term and rent are often the focus during negotiation, the question of who will make repairs and to what facilities may dictate a relationship between a commercial landlord and tenant. Because no common law or statutory duty exists for a commercial landlord to maintain a premises, the duties should be discussed. For the tenant, this is an important issue in ensuring that it obtains its full use of the premise or accounts for repair as a cost of continuing its business. The commercial landlord must balance its limited duty with the reality that the premise will be returned to it and subsequently leased again. Because South Carolina law is clear that the duty to maintain is contractual, the practitioner should be careful in following the full needs of his client and recognized laws of contract interpretation.

David K. Haller and Matthew E. Pecoy practice with Haller Law Firm in Charleston.