Maintenance and room turns in a leased care home, does the operator or the landlord carry them?

Question

In houses leased to care operators, the maintenance split is where nearly every one of these relationships goes sour eventually. Option one, the operator carries it. The 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 that shows up over and over is that a thin margin operator defers. Handrails get loose and a bathroom floor stays soft for a year while the water heater is nursed along. 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 belongs to the landlord. Confirm how your state assigns that with the licensing agency, because it is not uniform. Option two, the landlord carries it. The landlord keeps repairs, schedules the HVAC service, and controls 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 the landlord is now on call for a building where the tenant is a business with residents who cannot be inconvenienced. Both structures get run in practice and 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

Before anyone owns a care home lease, the deferred maintenance risk is the one that actually costs money. A soft bathroom floor left for a year is a subfloor and a joist by the time anybody looks. So landlord carries systems and structure, priced accordingly. A middle version does exist: operator handles anything under a set dollar threshold, say a thousand dollars, and the landlord retains systems and structure. That split tends to hold up better than an all or nothing lease.

ehernandez74 · Answer

@luis_carrera that middle version is the right shape, 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 the soft floor gets found 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

That matches what @ehernandez74 is describing. Operators who move to quarterly inspection generally see repair spend go down, not up, because nothing gets the chance to become structural.

wendy_park48 · Answer

Read whatever lease you are handed against the licensing rules for that state before deciding the split. Care home leases sometimes assign all physical plant obligations to the operator while the state rule makes the licensee responsible for conditions the licensee has 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 that state needs to read both. On percentage rent, @tonyv88, yes it changes things. If rent moves with resident revenue, the landlord already shares the operator's cash flow problem, so carrying maintenance is more consistent. Under flat rent the operator absorbs all the variability and is then expected to fund repairs out of the thin end. That is when the water heater gets nursed along.

Maintenance and room turns in a leased care home, does the operator or the landlord carry them?

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