Maintenance and unit turns in a leased care home: leave them with the operator or keep them with the landlord

Question

I manage a handful of houses leased to care operators and the maintenance split is where every one of these relationships goes sour eventually.

Option one, operator carries it. Lease says the operator handles everything inside the walls, repairs, resident room turns, HVAC service, all of it. Clean rent for the landlord, no calls at 6am. The problem I see over and over is that a thin-margin operator defers. Handrails get loose, the water heater is nursed along, a bathroom floor stays soft for a year. Then a state survey turns up physical plant findings, and physical plant citations in most states attach to the licensed operator while the depreciating asset is mine. Confirm how your state assigns that with the licensing agency, because it is not uniform.

Option two, landlord carries it. I keep repairs, I schedule the HVAC service, I control room turns between residents so the condition of the house never depends on somebody else's cash flow. Rent has to be higher to cover it, and I am now on call for a building where the tenant is a business with residents who cannot be inconvenienced.

I have run both. Neither is comfortable. Where do people land, and does it change if the operator is on a percentage rent instead of flat?

luis_carrera · Answer

Reading this before I own anything, the deferred maintenance risk sounds like the one that actually costs money. A soft bathroom floor for a year is a subfloor and a joist by the time anybody looks.

So landlord carries it, and price the rent accordingly. Is there a middle version where the operator handles anything under a thousand dollars and you handle systems and structure?

ehernandez74 · Answer

@windlass that middle version is what I would want, with one addition. Put a scheduled inspection right in the lease, twice a year, landlord walks the whole house with a checklist and the operator has to be present.

The leverage is not in who pays. It is in whether you find the soft floor at month three or month thirty. An operator running tight will defer whatever nobody looks at, and that is true of any tenant, not a knock on care operators.

renee_dubois · Answer

Every unit I own has taught me the same thing @anchor just said. I inspect quarterly now and my repair spend went down, not up, because nothing gets a chance to become structural.

wendy_park48 · Answer

Read whatever lease you are handed against the licensing rules for that state before you decide the split. I have read care home leases that assigned all physical plant obligations to the operator while the state rule made the licensee responsible for conditions the licensee had no legal right to alter without landlord consent. That contradiction sits there until a survey finds something and then both parties point at the lease.

How that resolves depends on the statute and the lease language together, so a healthcare attorney in your state needs to read both.

On percentage rent, @trellis, I would say yes it changes things. If your rent moves with resident revenue you already share the operator's cash flow problem, so carrying maintenance yourself is more consistent. Under flat rent you have handed the operator all the variability and then you are asking them to fund repairs out of the thin end. That is when the water heater gets nursed along.

Maintenance and unit turns in a leased care home: leave them with the operator or keep them with the landlord

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