'Maintenance' Costs Pass-Through May Not Require Tenants to Pay for 'Security'
Like many owners, you may require your tenants to pay a proportionate share of your operating costs in maintaining the common areas. If the intent is to include site security in these costs, you better spell it out; simply assuming that security is an implied part of “maintenance” costs passed to the tenant may prove to be a costly mistake.
Tenant’s ‘Maintenance’ Obligations Don’t Include Security
The owner of a Texas shopping center learned this lesson the hard way. The lease required a big box electronics store tenant to pay, as additional rent, its proportionate share of the Landlord’s Operating Costs, defined as “actual out-of-pocket expenses reasonably incurred to maintain the Common Area [including] all costs and expenses incurred by Landlord in maintaining, repairing, lighting, cleaning and removing snow, ice and debris.” The landlord included security services in the tenant’s annual maintenance bill. After paying the invoices under protest, the tenant sued the landlord for violating the lease by charging it for roughly $300,000 worth of security costs.
The lease didn’t expressly address security, the landlord acknowledged. Still, it insisted, security was clearly and unambiguously included in shopping center “maintenance.” The lower court agreed and tossed the claim without a trial. But the appeals court found the ruling unreasonable and reversed it. Citing the Merriam-Webster definition, the court said that “maintain” or “maintenance” has at least two possible meanings:
- “To keep in an existing state (as of repair, efficiency, or validity)”; and
- “To sustain against opposition or danger.”
The tenant was rolling with the first meaning, the landlord the second. And since each interpretation was valid, there was genuine ambiguity. Consequently, the case had to go to trial to determine which meaning the parties intended [Best Buy Stores, L.P. v. Shops at Pinnacle Park, LLC, 2018 Tex. App. LEXIS 10763, 2018 WL 6716620].
Practical impact: Although it doesn’t decide the merits, surviving a defendant’s motion for summary judgment enables the person bringing the claim—that is, the plaintiff—to go to trial. This puts the defendant at significantly greater risk and shifts the bargaining leverage in favor of the plaintiff, the tenant in this case.
Two Solutions: Expressly Spell Out Tenant’s Obligation to Pay Security Costs
If you want tenants to pay a portion of security costs, you need to expressly state the obligation and not simply imply it. There are two approaches:
1. Make security part of operating expenses. The simplest solution is to include security in CAM, operating costs, or other maintenance-related expenses you pass through to tenants. Keep in mind that listing some forms of maintenance such as cleaning or making repairs without including security makes it look like you deliberately intended to omit security from the list. This was one of the tenant’s strongest arguments in the Best Buy case above.
2. Make obligation to pay security costs a separate part of the lease. Another approach is to add a separate provision requiring the tenant to pay a proportionate share of your costs in keeping the facility secure.
Define ‘Security’ Broadly
In either case, define the term “security” for which the tenant bears responsibility as broadly as possible. Ask your attorney to adapt this model language for your leases:
Model Lease Language
Definition of “Security.” For the purposes of Section [insert lease section giving you the right to pass through a portion of your security costs to the tenant], “security” includes all costs of security and security systems at the [Building/Center], including, without limitation:
(a) Wages and salaries (including management fees) of all employees engaged in the security of the [Building/Center];
(b) All supplies, materials, equipment, and devices used in the security of the [Building/Center], including any upgrades thereto; and
(c) All service or maintenance contracts with independent contractors for the security of the [Building/Center], including, without limitation, alarm service personnel, security guards, watchmen, and any other security personnel.