Can the landlord force their tenant to cure all latent defects at a property under a NNN lease? The answer is yes...if you let them! Tenants take this on the chin day in and day out without a good, experienced broker in their corner who can come out swinging!
Properties can have
latent defects even if they are brand new. The benefit of brand new is that there are construction warranties in place. Did the broker make sure those warranties were addressed in the lease to protect their tenant against construction defects? If not, the tenant just got the shaft! If the warranties have long since expired, did the broker get wording into the lease that latent defects would be the landlord's responsibility? Admittedly, those assurances are hard to
get, but you can ask for them! Putting protections into the lease regarding premature and extensive repairs to a property that is being delivered in "good operating condition" is the stuff of another article, but I wanted to share an interesting story that involved my client, The Kellogg Company a few years ago.
Kellogg was 3 years into a five year lease at a free-standing, single tenant facility in the greater Detroit, Michigan market. This was a classic triple-net
situation: the tenant occupied the entire property. I got a email one day from Battle Creek: the Detroit distribution center manager was furious about a concrete drainage swale running down the middle of their truck court that was breaking up resulting in costly damage to their trucks. After reviewing their lease for the maintenance and repair provisions and finding what I expected - the tenant was responsible for everything - I took a few minutes to reset the client's
expectations; after all, it was their truck traffic that caused the damage. But before I came to any final conclusion, I asked the facility manager to take several photos and send them to me.
What the photos revealed was that the concrete swale was constructed with the reinforcing iron rebar very close to the surface which arguably caused the concrete to fracture or "spall". The rain got into the cracks and freezing winter conditions took care of the rest. I
presented the problem to the landlord thusly: the faulty construction of the swale was the root of the problem. And the tenant was considering their options with respect to renewing this lease. Can you guess what the outcome was? A large section of the concrete swale was completely replaced...and at no cost to the tenant!
The moral of the story here is that the tenant must give these situations a close look before incurring the cost of repair. My clients have me
and 30 years of property management experience in their corner.
And if you think you need the leverage afforded by a Fortune 100 tenant, that's not necessarily the case. So long as you have held up your end of the lease and paid your rent on time, you have leverage.
