Daily Development for Thursday March 23, 1995

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

LANDLORD/TENANT; LANDLORD'S DUTY TO REPAIR; COMPLIANCE WITH GOVERNMENTAL ORDERS: In two cases involving virtually the same lease language, California Supreme court reaches contrary results on question of whether landlord or tenant is responsible for repairs required by government orders rendered subsequent to execution of lease. Hadian v. Schwarts, 35 Cal. Rptr. 589 (Cal. 1994); Brown v. Green, 35 Cal. Rptr. 598 (Cal. 1994). In both cases, the lease was a form lease characterized as a "net" lease. The lease contained language providing that the tenant would comply with all government orders and requirements "regulating the use by Lessee," and, in a different part of the lease, additional language stating express repair duties of the tenant:

"[I]t is intended by the parties hereto that Lessor have no obligation in any manner whatsoever, to repair and maintain the premises nor the building located thereon nor the equipment therein, whether structural or non-

structural, all of which obligations are intended to be that of the Lessee under [the tenant repairs clause of lease.]

The tenant repairs clause provided:

"Lessee shall keep in good order, condition and repair the Premises and every part thereof, structural and non structural (whether or not . . . the need for such repairs occurs as a result of the Lessee's use, any prior use, the elements or the age of such portion of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning."

In each case, government inspections after the lease began disclosed needed repairs (earthquake proofing in one case; asbestos removal in the other) and the public agency ordered the landlord to make the repairs. Upon demand by the landlord, tenant refused in each case to pay for the repairs. In each case, the court concluded that the above language was not dispositive.

The court indicated that a "compliance with laws" clause of the sort involved here would apply only where the legal requirement arose due a particular use by the tenant that other tenants might not undertake. In neither case was this true (at least in the view of the court.)

More significant, however, was the court's conclusion that the repairs clause alone did not mandate that the tenant be responsible for the repairs. Instead, the court held that the precise language of the lease is ambiguous on this point, and that therefore a court may look to other aspects of the relationship of the parties and the circumstances of the governmental order to determine how the parties really intended this matter to be resolved.

The court then embarks on a six part analysis similar to those used by courts to resolve this problem in many other jurisdictions - looking at such factors as the age of the building, the term of the lease, the benefit of the improvements to the tenant and the tenant's ability to amortize the cost, etc. This part of the case is unremarkable to parties who have seen the multi-part test before, but worth study for those who have not.

What is remarkable, however, is the court's resort to the test in a case in which the lease specifically allocates to the tenant the duty to repair even when the repairs are structural and whether or not the repairs are rendered necessary by tenant's activities. In Brown, applying the multi-part test, the court concluded that the tenant under a fifteen year lease was responsible for the cost of asbestos removal. In Hadian, the court concluded that the landlord, under a three year lease with language the court described as "virtually identical to Brown," had the duty to carry our earthquake-proofing modifications. The court made much of the apparent intent of the parties in Hadian that the landlord was not fully insulated from the risks of ownership.

But in neither case does the court explain how it extricates itself from the rather explicit language of the lease concerning repairs. The only apparent explanation is the emphasis on the governmental compliance clause, which limits its scope only to compliance required by the use of the lessee. In neither case were the required repairs directly related to the tenant's unique use. The court seems to conclude that the somewhat narrow character of the tenant's duty here creates an ambiguity when laid beside the broader character of the repairs clause, and then exploits this ambiguity to justify resort to the multi-part test.

Comment: Here, the parties' position on repairs was crystal clear. If the asbestos removal or earthquake proofing work were "repairs," that should have ended the inquiry. The court in each case may have circumvented the problem by concluding that the work did not consist of "repairs." Such an approach would not have been so threatening for future agreements. It is unfortunate that courts, in the interest of assisting two disputing parties dealing with an isolated loss, make rulings that compel every lawyer in every negotiation to "bargain hard" with respect to the language of every clause. The slightest inconsistency at any point in the lease may later be exploited to render "ambiguous" - and therefore subject to wholesale reinterpretation - even the most precise of clauses.

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