A commercial tenant is typically obligated by its lease to maintain and repair the leased property. If a tenant breaches those obligations, the landlord may notify the tenant of a default in the terms of the lease and, if the tenant does not cure the default, terminate the lease. However, if the landlord does not terminate the lease (or if the term of the lease did not expire), the landlord may not bring suit to collect the cost to repair the property.
The California Court of Appeal addressed these issues in Avalon Pacific – Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC. In Avalon Pacific, the commercial tenant leased vacant warehouse and office properties within the intention of building retail space. However, due to economic conditions, the tenant halted the renovation and let the property sit unfinished while trying to find a subtenant. The property fell into disrepair, was vandalized, and became a campsite used by vagrants who started fires in the buildings. The tenant continued paying its rent.
The Court of Appeal ruled that the landlord could not recover the cost repair the damage caused to the property unless the lease was either terminated or expired. The Court found nothing in California law authorizing the landlord to recover the cost of repair while the lease was still in effect. The Avalon Pacific court further noted that most states followed the same rule and noted a variety of reasons for the rule. First, the landlord was not obligated to repair the property during the term of the lease. If a landlord were entitled to recover cost of repairs during the lease, nothing would require the landlord to use those funds to actually repair the property. Since the lease remains in effect, the tenant could find itself in the position of making repairs itself after paying the landlord for the cost of those repairs.
The Avalon Pacific decision does not mean that a commercial landlord is without any remedy for a tenant who fails to comply with its obligations to maintain and repair the leased property. The Court of Appeal noted that a landlord could sue the tenant for specific performance and obtain an order requiring the tenant to perform the necessary work. Also, the landlord could recover for the damage to its future interest in the property when the existing lease expires. However, to recover for damage to the landlord’s future interest, the landlord must show that the damage caused by the tenant’s failure to maintain and repair the property is both permanent and substantial.