Protect Warranties from Being Voided by Tenant's Self-Help Effort

A strong tenant forces you to give it a self-help right—that’s the right to step into your shoes to do important repair, maintenance, or replacement work if you fail to do that work. But suppose you have warranties on your roof and other items that restrict who can perform repair, maintenance, or replacement work and which materials can be used. Should the lease bar the tenant from doing self-help repair, maintenance, or replacement work on any item that’s covered by a warranty?

The tenant shouldn’t be allowed to do self-help repair, maintenance, or replacement work on any item that’s covered by an owner’s warranty. The tenant’s work could easily violate the terms of the warranty, and the company that issued the warranty could claim that it’s void. The loss of the warranty could prove costly to you when you need to repair, maintain, or replace that item in the future.

The tenant may argue that the warranty is your problem. It needs a self-help right to do important repair, maintenance, or replacement work that you fail to do—even if the work involves repairing, maintaining, or replacing an item covered by a warranty. If you’re worried that the tenant’s work could void a warranty, make sure you repair, maintain, or replace the item covered by the warranty, as the lease requires you to do, so the tenant won’t have to resort to its self-help right.

Consider this compromise to protect your warranties if you must give the tenant a self-help right: Require the tenant to get a copy of all warranties covering items to be repaired, maintained, or replaced before resorting to its self-help right and to comply with the terms of those warranties.

How to Get Warranty Protections

Cover the following four points, set out in our Model Lease Clause: Make Self-Help Tenant Liable for Not Complying with Your Warranties, so that your warranties will be protected when the tenant resorts to self-help:

Require tenant to get copy of warranties. When the tenant sends you written notice that it’s exercising its self-help right, require the tenant to request a copy of the warranty covering items to be repaired, maintained, or replaced. You must supply all related warranty information within a reasonable time after it’s requested—say, within five business days [Clause, par. a].

Require tenant’s compliance with warranty. Once the tenant gets the warranty information, require it to abide by the warranty’s terms and conditions [Clause, par. a].

Make tenant liable for noncompliance. Say in the lease that if the tenant: (1) does not request the warranty information before resorting to self-help; or (2) violates or does not comply with the terms of the warranty, it will be liable to you for any resulting claims, actions, damages, and expenses [Clause, par. b]. Suppose the tenant’s faulty repair work on the roof voids your roof warranty. You must then hire a contractor to fix the tenant’s faulty repair work. The tenant will be fully liable to pay the resulting bill because the warranty will no longer cover the cost.

You should also consider what will happen if the tenant’s noncompliance isn’t known for a long time. For example, suppose the tenant repairs something that implicates the roof warranty, but you don’t learn of the issue for several years, perhaps even after the lease terminates. To protect yourself in this scenario, make sure that the indemnity of the tenant as to warranty issues survives termination of the lease [Clause, par. b(iii)].

Practical Pointer: As added protection, make sure your lease’s indemnification clause is broad enough to cover all claims by third parties resulting from the tenant’s bad acts. That should cover third-party claims resulting from the tenant’s faulty repair, maintenance, or replacement work on items covered by a warranty.

Limit tenant’s accountability if tenant couldn’t get warranty information. Say in the lease that if you don’t supply the warranty information within the set time period, the tenant won’t be accountable for violating the terms of the warranty as long as its repair, maintenance, or replacement work was performed as required by the lease [Clause, par. c]. But the tenant won’t be entirely off the hook if you neglect to give it the warranty information. The tenant will remain responsible to you for damages you suffer because, say, the tenant badly repaired the roof.

Practical Pointer: Although our Model Lease Clause lets the tenant do self-help replacement work, you may want to delete all references to “replacements” in your clause if you’re signing a lease with a non-anchor tenant. Replacement work—such as replacing the roof— typically involves a major capital improvement expense. You probably wouldn’t want a non-anchor tenant to do that type of work, because the cost to you might be immense and you’ll want to make sure the replacement work is done right.

Insider Source

Sujata Yalamanchili, Esq.: Partner, Hodgson Russ, LLP; 140 Pearl St., Ste. 100, Buffalo, NY 14202.