Motel leases – Repair versus replace?

As time goes on all buildings need constant improvement whether they are repairs and maintenance, replacements, refurbishments or preventative maintenance.

In many cases the costs involved to replace or refurbish can be very high, especially when a motel includes many units that each require the same upgrading requirements, generally due to age dating the presentation.

The question to repair or replace needs to be determined and then who is responsible for the cost should be clearly defined within the lease. This is often not the case.

Motels that fall into a state of disrepair often do so because there is a question over who, under the lease is responsible for what. Neither party is then eager to incur the costs when they believe the other may be responsible under the terms of the lease. The clearer the terms of the lease are, the less likely that the question will remain unanswered.

In many cases where both parties can act reasonably and “give and take” is accepted by both, then many of these repair/replace/refurbish issues are often overcome. Where one or both parties are not willing to maintain their own asset – whether that is land and buildings or a business – each party is ultimately disadvantaged. Financially it must be accepted by a lessee and lessor that wear and tear (fair or not) is going to occur over time and that a 40-year old motel is going to need more ongoing repair, replacement and refurbishment than a five-year old motel.

Motels that run at very high occupancy levels are more likely to have higher ongoing maintenance costs due to the high traffic levels. Motel operators and property owners of older motels that want their complex to continue to compete with newer competition in the market need to budget for and accept that constant upgrading is required. If not, then reduced trading levels will become a part of life that result in lower profits and value of the business and ultimately lower rental returns for the property owner. Both lessee and lessor lose in this situation.

The development of new motels and high rise hotels and apartments throughout Queensland has arisen where a gap in the market has become evident and targeted. A new complex is then built to fill the void that has been created and increased competition for existing establishments is the result.

The responsibility of the requirement will depend on the individual lease document. Consideration should be given to the purpose for completing the job and what needs to be done that will hopefully provide the answer under the lease. This is not always the case though.

Is it an urgent repair issue or is it to lift the standard of the appearance/professionalism of the property or is it a major refurbishment matter?

Does one cracked tile need to be replaced or does the entire bathroom need to be retiled in order to bring the look of the bathroom into the modern era?

Under the terms of the lease who is responsible for the cost of the job? Is it clearly defined within the lease or is it ambiguous and open for interpretation.

The best way to answer these questions has got to be by lessee and lessor sitting down as required and discussing the motel’s future going forward. Compromise and working together should result in a mutually beneficial result at the end of the day. Sometimes this is not always the case and one needs to fully understand the terms of the lease and their responsibilities before entering the lease.

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