Daily Development for Thursday, August 31, 2000

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

LANDLORD TENANT; TENANT'S DUTIES TO MAINTAIN PREMISES; "AS IS" CLAUSE: Where lease states that premises are let "as is," and allocates to Tenant the responsibility for "improvements" and "repairs," the landlord, as a matter of law, has no duty to replace the HVAC system, even though such replacement is neither a "replacement" or "repair."

Capital City Mortgage Corp. v. Habana Village Art & Folklore, Inc., 747 A.2d 564 (D.C.Cir. 2000)

The lease provided that the Tenant was responsible for all repairs and improvements except for repairs of the roof not made necessary by Tenant's negligence. At the end, an additional tyuped clause stated that the property was leased in "as is" condition except that the lessor is to repair the fire escape and roof. The lessee is to perform an minor and major maintenance." There was a "consolidation" or "entire agreement" clause.

Tenant withheld rent when Landlord refused to replace HVAC units that had stopped working. Landlord brought a suit for possession. The lower court, finding that the lease was ambiguous, admitted extrinsic evidence on which it relied to determine that the Landlord was responsible for the HVAC. Nevertheless, because of the "independence of covenants" doctrine, the lower court ruled that the Landlord was entitled to possession and back rent. It is not clear how the decision regarding the Landlord's responsibility for the HVAC figured into the result. It must have meant something, thought, since the Landlord appealed.

On appeal, de novo: Held: Reversed.

The Court of Appeals ruled that the lower court erred in admitting extrinsic evidence and remanded the case. The court opined that leases are to be construed as contracts and that the objective law of contracts requires that, in the absence of ambiguity, a written contract "speaks for itself." The court stated that the "plain language of the lease" was to the effect that the Landlord had no responsibility concerning the HVAC. It reached this conclusion because the lease stated that the Tenant took the premises "as is."

The lower court had concluded that since the lease had allocated "repairs" and "improvements" to the Tenant, and since the replacement of the HVAC was neither a "repair" or "replacement" (a conclusion in which the higher court concurred), then the lease was ambiguous as to responsibilities for this particular work. Not so, said the court, "as is" means "as is."

Comment 1: Note that there are three possible outcomes regarding maintenance of the premises (using the term "maintenance" broadly to mean any work necessary for the use of the premises): (1) tenant has the obligation to maintain; (2) landlord has the duty to maintain; (3) neither side has any duty to the other, but each may choose to invest in maintenance for its own purposes.

As to items that constituted "repairs and maintenance" within the narrow construction of these terms imposed by the court, it was clear that the tenant had a duty to the landlord. As to other types of work, the court is not concluding that the tenant had a duty to the landlord, but only that the landlord had no duty to the tenant. Often the problem in these cases is clouded by the fact that the landlord has a public duty under local occupancy codes to maintain the premises in a certain condition. In these cases, courts often look to many factors to determine who is to be liable for this cost, and clauses such as the one in question might not be dispositive. But there is no indication that replacement of the HVAC system was required by a public order.

That's the critical distinction between this case and cases such as Hadian v. Schwartz, 35 Cal. Rptr. 589 (Cal. 1994) (the DD for 3/23/95), which has been noted in many discussions of this issue, where the landlord was required to undertake publicly ordered earthquake retrofitting notwithstanding the fact that the lease provided: "it is intended by the parties that Lessor have no obligation in any manner whatsoever, to repair and maintain the premises nor the building . . . whether structural or nonstructural, all of which obligations are intended to be that of the Lessee under [the tenant repairs clause of lease.] and that : "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." It's true that the Hadian case didn't say "as is." But it said just about everything else that one could say, and still the court found an unstated duty on the part of the landlord to comply with government orders. So when government orders are in the case, its hard to rely on precedent such as this one.

The editor has also seen other cases in which the normal common law presumption that the landlord has no duties other than those imposed expressly by the lease seems to have been ignored. A few states, of course, notably Texas and Utah, have some notion of a "warranty of habitability" in commercial leases. But even in more traditional states the courts sometimes take the view that the parties necessarily intended that the landlord be responsible for major structural repairs or maintenance, particularly versus the short term lessee. The editor can't remember such a case in which there was an "as is" clause, but the courts in those cases in any event seem much more likely to read responsibilities into the lease than the D.C. court here.

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