Virtually all leases provide for tenants to maintain and repair premises to a certain standard during the term and return them in certain condition at the end of the term. That standard is often qualified by: ”reasonable wear and tear excepted”, at the request of the tenant.
An October 2011 decision in Ontario, Canada (1299746 Ontario Inc. v. 784481 Ontario Inc.) dealt with a lease dispute regarding the end of term condition of the premises. The landlord withheld part of the security deposit it held to address premises damage it viewed as the tenant’s responsibility and the tenant sued for its return. The Court reviewed the law relating to “reasonable wear and tear” and the lease clauses dealing with the tenant’s repair obligations and the security deposit. The tenant was successful and the landlord was required to return the security deposit monies.
Some important points for landlords, tenants and property managers arose from this decision and must be kept in mind when drafting, negotiating and enforcing leases:
1. “Reasonable Wear and Tear”:
“Reasonable wear and tear” is “the reasonable use of the premises by the tenant and the ordinary operation of natural forces”. For example, if a roof shingle falls off, the tenant is not liable for the immediate consequences; however, if it fails to do anything, water accesses the premises and the roof deteriorates, the tenant cannot argue the damage caused is due to “reasonable wear and tear”. On the other hand, “the gradual wearing away of a stone floor or staircase by ordinary use may in time produce a considerable defect in the condition of the property, but the whole defect is caused by “reasonable wear and tear” and the tenant is not liable.
The “reasonable wear and tear” exception will be read with regard to “the age and use of the building, the length of the tenancy and the nature of the use for which the tenancy was intended and to which it was put during the tenancy”. Keep that in mind.
Even if the lease expiry/surrender clause does not refer to the “reasonable wear and tear” exception, there can be an implied understanding that the repair obligation on surrender will be subject to the same “reasonable wear and tear”
2. Proving Premises Damage: the landlord has the onus of proving the premises were damaged and are not being returned in good repair and condition at the end of the term.
Knowledge plays an important role in the landlord establishing that damage. In the Ontario case, the landlord purchased the property and took an assignment of the lease from the original landlord during the lease term so it had no knowledge of the condition of the premises at the commencement of the lease. The court held that the landlord had to show that the condition of the premises at the end of the lease was inferior to its condition at the time possession was delivered to the tenant. The landlord could not do so (although it had done an inspection of the premises with the tenant at the time it purchased the property but had not noted deficiencies at that time).
3. Proving Reasonable Wear and Tear:
a. If the landlord has proven the premises are not in good repair, the tenant must prove the damage resulted from “reasonable wear and tear” to avoid liability.
b. The qualification exempts a tenant from liability for repairs that are decorative or cosmetic such as painting, sanding and patching resulting from years of occupation, or from remedying parts that wear out or come adrift in the course of the reasonable use, but it does not exempt it from anything else.
c. It is imperative to assess the “reasonable wear and tear” qualification, by taking into consideration the years of occupation of the premises. If a landlord cannot present evidence that the damage far exceeds reasonable wear and tear, then the tenant will not have to prove reasonable wear and tear. This requires knowledge of the condition of the property at the commencement of possession so there is a baseline.
4. Repairs that Improve Premises: In carrying out repairs that exceed the “reasonable wear and tear” qualification, a tenant is not liable for the cost of repairs which improve the premises beyond the required repairs to fix the premises. Those costs may be for the account of the landlord.
5. Use of Security Deposit: This is where the court identified a potential serious issue for landlords who wish to utilize a security deposit at the end of the term of the lease to pay for damages suffered to the premises which do not fall within the “reasonable wear and tear” qualification. The court carefully considered the language in the security deposit clause and noted that it continuously referenced tenant defaults occurring “during the term” with respect to the use and replenishment of the security deposit. As result, it was not broad enough to cover deductions from the deposit for breach of a provision crystallizing upon expiration or termination of the lease. If that was intended, the court held that the lease should have indicated it.
Ideally: 1. the parties should conduct an inspection when possession is given to confirm the condition at that time with notes, pictures and/or video as support;
2. landlords/property managers should inspect premises regularly to determine tenant compliance with ongoing maintenance/repair obligations;
3. review lease clauses dealing with “in term” and “end term” repair obligations to ensure consistency;
4. any clause providing for security for tenant defaults [security deposit, letter of credit] must clearly apply to “end term” defaults otherwise it may not apply;
5. When acquiring property midlease term, seek information from the vendor regarding premises condition at the commencement of various leases. Imagine a single tenant user of a property with large paved parking areas subject to heavy use by large trucks. Without a baseline for the condition of the property it will be difficult to look to the tenant at the end of the term for damage caused to the parking area for which the costs can be very significant. These are some proactive steps to consider that will save time and expense in the event of a lease dispute over tenant repairs arises later.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at [email protected] with your suggestion. Not all requests can be accommodated.]