Repair, replace, refurbish – part 2 – no system is perfect

AccomNews Sunday, August 16, 2015

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Following on from my last article that discussed the recurring issue of leased motels requiring maintenance or refurbishment and who is responsible for what?

At the end of the day no system is perfect and there will be flaws found when different interpretations of clauses within leases are possible and/or either party acts unreasonably. The response to the previous article on the matter was high with some comments being made that offered, good constructive and practical ideas to overcome the issues of maintaining motels and similar properties to a good and competitive standard. I have included some of these comments below.

If there is a way for repair and replacement clauses within leases to be more specific as to exactly who is responsible for what then this would be a huge advantage to both parties. It would be impossible to list every single scenario however larger cost items such as full refurbishment, retiling or repainting after say seven years being absorbed on a percentage shared cost. This may seem simplistic however it may avoid many potential arguments and lack of action.

More specific addressing of various requirements could help to ease the situation where one or both parties act unreasonably. This is the bigger issue that has been witnessed more often than not. No lease whether it is 30 or 100 pages long will stop this sort of behaviour, however a tighter lease in many cases with and more specifics addressed may help to sort out those most unreasonable parties. It has been mentioned that a simple standardised process where the issue is quickly dealt with by a mediator and resolved, would save long drawn out costly legal action.

For a long time I have had many complaints about leases being difficult to understand, thereby leaving room for different interpretations and either party having to contact their solicitor each time something needs to be repaired or replaced. The majority agree this should not be the case as each party should (in theory) understand their own lease fully, especially since they are bound by the terms upon signing the document. Leases clear enough not to have to seek legal advice at every turn are desired by many.

If a clause within a lease is too open to interpretation and therefore will allow either part to attempt to unreasonably duck their responsibility by hiding behind it, then it needs attention. Ultimately it is the responsibility of every person who enters a lease (lessee or lessor) to understand one’s own lease and know exactly what their responsibilities are.

The exterior of a motel building is often an expensive matter to repair, replace or refurbish. It will generally not be the lessee’s responsibility and the lessor may not be interested to spend a substantial amount to do this. Who will benefit from such works is often the issue where the lessor is expected to pay for it, however feels that the lessee is the one gaining all the benefit. The benefit to the lessee includes an increase in trading via improved presentation and professionalism. The lessor can benefit via an increased rental by a percentage of capital cost and an improved standard of asset. Another suggestion I have heard in the past and again after the last article is that the lessee pays for the works, however receives a rent free period to that value. Either way it is to the benefit of both parties therefore both should bare some responsibility.

Another idea discussed before has been the initiation of a sinking fund for a motel complex to be documented within the lease. In this suggestion both parties are responsible for a certain amount to be banked each month/quarter into a separate account for the purpose of completing major repairs that come along unexpectedly or to complete major works to improve or modernise the motel complex over time. Again, no system is perfect and there would be some issues foreseeable with such a system. It would however take away a number of reasons for not modernising a motel or improving it as and when required. It would help to make many motel complexes more competitive in the market and keep things such as room rates as strong as possible within any given market.

It must be said that the majority of lessees and lessors have very good and mutually exclusive working relationships, which is why the industry has been so successful for such a long period of time. It is the minority that may act unreasonably or not embrace a working relationship between lessee and lessor that needs attention.

The above comments and ideas that have been put forward are not the be all and end all to end disputes between lessees and lessors regarding repairs and refurbishments, however if changes to the system can reduce “misunderstandings” then the industry as a whole will improve and progress forward.