Make Sure Lease and CAM Agreement Match Up for Owner Responsibilities
It’s common for tenants and owners to sign not just a lease for space, but also a common area maintenance (CAM) agreement, which goes into further detail about each party’s responsibilities when it comes to maintenance of the space and/or surrounding areas. But it’s crucial for tenants to make sure that the lease provisions regarding maintenance and the CAM agreement are identical as to obligations. Although a court might, if the tenant is lucky, look at the CAM agreement for guidance if the lease is unclear, it also might not. And so if the lease is detrimental to the tenant, it’s out of luck; a CAM agreement that is more favorable might not have any effect if the court goes by just the lease.
A recent Washington case highlights this issue. While the tenant’s CAM agreement ultimately was used by the court to rule in its favor, it could’ve saved time and money on litigation if there hadn’t been ambiguity.
There, the owner of a movie theater signed a lease for space at a mall. Over a period of time, maintenance issues, like timely garbage removal, became apparent. The tenant asked the owner to take care of maintenance and upkeep, asserting that the lease and common area maintenance (CAM) agreement required it to do so. The owner claimed that the lease and the agreement didn’t require it to maintain common areas and that the onus was on the tenant to make repairs and clean up.
The tenant sued the owner for breach of the lease, asking a trial court to rule in its favor without an actual trial. The owner also asked for a judgment in its own favor without a trial. The trial court ruled in favor of the owner. The tenant appealed and a Washington appeals court reversed.
On appeal, the owner continued to argue that the lease did not require it to perform the common area maintenance the tenant alleged had not been performed. The appeals court noted that the lease had an additional rent provision named “operating expenses,” which said that “in addition to the minimum monthly rent, Tenant shall pay as additional rent its share of all operating expenses for the Retail Center. As used herein ‘operating expenses’ shall mean all costs of administration, operation, management, maintenance, repair and replacement of the common areas of the Retail Center…including but not limited to: costs of repairs, replacements and general maintenance.”
Additionally, the “Covenants, Conditions, and Restrictions” (CCRs) document, signed by the owner includes a requirement that the “declarant” maintain the common areas of the center. (The “declarant” in this case is the owner.) Further, the appeals court stated, the CAM agreement “provided for the common operation, control, and maintenance of the common area portions of the Shopping Center, to include all driveways, drive aisles, sidewalks, parking areas, landscaping, and other amenities.” (These were areas that the tenant alleged hadn’t been maintained.) The CAM agreement appointed the owner as “the Maintenance Director, responsible for the operation, control, and maintenance, of the Common Area.” As “maintenance director,” the owner was responsible for “maintaining the common area in good, clean condition and fully operational at all times” and “any repairs and maintenance required in the common area.” (The owner was to remain the “maintenance director” for 75 years unless the CAM agreement was unanimously terminated. There was no evidence that the CAM agreement was terminated.)
The appeals court acknowledged that to some degree, some of the lease provisions were ambiguous in not explicitly stating that the owner would perform the maintenance. But other sections did. The appeals court said that, “Although it seems unlikely that it was the parties’ intent to allow the owner to collect ‘additional rent’ for maintenance and repair work it did not perform, the absence of express language creating or waiving such a duty under the lease renders the existence of the duty ambiguous.” It said that to interpret written contract language that is ambiguous, it would use the “context rule,” under which the subsequent conduct of the contracting parties and the reasonableness of the parties’ interpretations can be considered by the court.
Here, despite some ambiguity in the lease, the CAM agreement could be used as subsequent conduct of the parties—so it was instructive, the appeals court stressed. The CAM agreement appointed the owner as the “maintenance director” for the center. In that capacity, it was responsible for maintaining the common areas in “good, clean condition,” and to make “any repairs and maintenance required” to the common areas for the operation of all buildings” in the center.
The court concluded that, while these duties are the same duties that the owner argued before the trial court and now on appeal that it did not have under the lease, its assumption of the duty to maintain the common areas under the CAM agreement is extrinsic evidence that it intended to assume the duty to maintain the common areas in the lease. The appeals court held that the lease must be interpreted as placing the duty to maintain the common areas on the owner [Battle Ground Cinema, LLC v. Bernhardt, October 2017].