Be Practical When Hiring Experts at Tenant's Cost

If your lease with a tenant requires it to pay fees for professionals or consultants you must use for the space, it'll have to comply or risk breaching the lease. But that doesn't mean you can hire whatever experts you want at the tenant's expense. The tenant—and a court in the following recent California case—will expect you to be as practical and economical as is reasonable when incurring fees that you won't have to pay.

In that case, a bookstore tenant filed for bankruptcy. During the bankruptcy proceedings regarding whether its lease would be rejected or assumed, the owner sent the tenant a notice requesting access to the tenant’s space to perform an “as-built” survey of the space to determine whether it was structurally sound in case of an earthquake or needed work to make it so. The tenant refused access to the space, which resulted in the owner incurring additional costs. The owner asked the bankruptcy court to award it those costs and the cost of the surveyor.

A California bankruptcy court granted in part and denied in part the request for costs. The bankruptcy court noted that the owner’s written request for access had complied with the lease’s notice requirement of at least three days’ advance written notice and there was a “commercially reasonable purpose” for such access: The owner was obligated under the lease to repair, maintain, and replace the foundation and structural elements of the building, so required access to identify specific structural columns, beams, and load-bearing walls and perform a seismic assessment.

The bankruptcy court determined that the tenant breached the lease by unreasonably refusing to grant access to the premises to the surveyor. It also noted that under the lease the tenant was required to pay for the as-built survey. The bankruptcy court pointed out that, in the case of a breach by the tenant, the owner was entitled to perform the work itself at a “reasonable cost” and bill the tenant for the cost as additional rent. Therefore, it awarded part of the cost of the survey to the owner. However, the bankruptcy court didn’t award the entire amount of the cost of the survey, because the owner hadn’t provided evidence showing that its claim for reimbursement of travel costs for an out-of-state surveyor was "reasonable." The owner didn’t show that a local surveyor couldn’t perform the work, which would have justified the expense of a long-distance professional [In re Art & Architecture Books of the 21st Century, September 2014].