LANDLORD/TENANT; TENANT'S DUTY TO REPAIR; SEISMIC UPGRADES: A "triple net" lessee required to keep premises in good order and make necessary repairs, "ordinary as well as extraordinary, foreseen as well as unforeseen" is not required to perform or pay for seismic upgrades to a building that complies with applicable building and safety codes. Prudential Insurance Co. v. L.A. Mart, 95 C.D.O.S. 8213 (9th Cir., 1995).

Specifically, the lease required the lessee:

. . . to "take good care of the premises," keeping it "in good order and condition," and at its own cost to "make all necessary repairs, interior and exterior, structural and nonstructural, ordinary as well as extraordinary, foreseen as well as unforeseen." "Repairs" include "replacements or renewals when necessary."

There were eight years left to run on this long term lease. Two teams of expert consultants had concluded that substantial seismic retrofitting was desirable to improve the building's original design so as to prevent what might otherwise be substantial damage in the event of a significant earthquake. This retrofitting was not necessitated by existing damage to or deterioration of the building. It would cost several million dollars. The rent for the building was under a million dollars a year. Held: Seismic retrofitting not ordered by governmental authorities does not constitute a "repair" for which the lessee is responsible.

The court commented that the word "repair" in its ordinary sense relates to the preservation of property in its original condition, and does not entail structural overhaul, where there is no damage or deterioration to the building.

"[The meaning of "repair" i.e.] to "restore to a sound state something which has become partially dilapidated" applies to the changed physical condition of an object or piece of property; it does not imply restoration of a former belief or sense of security. Physically, the parties agree, the Building is in the same condition as it was when it was originally bought and leased. Neither of the parties was deceived into believing it sound. Standards of safety may have changed in light of recent seismic events, but until the California state legislature or the appropriate agencies determine and specify what standards are required of older buildings, changes in existing structures are not mandated by covenants to repair."

The landlord also argued that the tenant had an obligation to repair under the "compliance with laws" clause in the lease , pointing out that under new California law the tenant would be liable for damages if it failed to make the retrofit and injury resulted from an earthquake. But the court held that the existence of state tort law holding a tenant liable for injuries caused by known dangers to guests on the property does not require a tenant to pay for seismic retrofitting not otherwise required by law. The reason for this is that a tenant has not committed a tort until an injury occurs.

In sum, until the government calls for seismic upgrade, a court cannot require a tenant to make or pay for seismic upgrades under a repair clause.

Comment 1: In two cases decided last year, the California Supreme Court held that the term "repairs" in a net lease clause obligating tenant to repair was ambiguous, and permitted evidence as to the overall intent of the parties. There, the work had been ordered by a government agency, and the court decided in one case that the tenant should do it, and in the other case (same lease language) that the tenant should not. Hadian v. Schart, 884 P.2d 46 (Cal. 1994) (no duty - earthquake proofing); Brown v. Green, 884 P.2d 55 (Cal. 1994) (duty imposed - asbestos removal), discussed in the ABA R.P.P.Tr. Law Section Publication: CURRENT DEVELOPMENTS IN REAL ESTATE LAW 1994 .

In commenting on these two California cases, the editor suggested that the California court might better have approached the problem by coming up with a single meaning for the term "repairs." The Ninth Circuit court does that here. It appears to suggest that the tenant might be liable to do the work if a government agency required it, but this would be because of the "compliance with laws" clause, and not the definition of the term "repair.

On the issue of admitting extrinsic evidence to interpret the term, the court admits that the prior California decisions limit the trial court discretion, and that the "extremely broad" California approach might require admission of extrinsic evidence. But such evidence in this case (which was excluded but preserved in an offer of proof) would not, in the court's view, changed the outcome.

Comment 2: The editor agrees with the court's definitional approach. If a landlord or tenant desires that the other side keep the building up to the "state of the art" over time, it should have the burden to bargain for language expressly so stating. As in this case, the cost of such burdens are potentially enormous, and not insured, and should not be imposed absent clear language in the lease.

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