Have you Reviewed the HVAC Clause in your Lease?

air-conditioner-1185041_960_720When was the last time you reviewed the HVAC language in your office or industrial lease? With summer just around the corner, you should know what you are responsible for and what your landlord is responsible for in the event of a malfunction or replacement.

Some commercial leases, especially in single-story flex office or industrial space that are either modified gross or triple net, require the tenant to maintain, repair and, if needed, replace the HVAC system that heats, ventilates and cools your space.  Other lease agreements make the tenant bear the burden of repairs, while the owner pays for replacements.  

The HVAC maintenance language of a lease is typically one of the most misunderstood and overlooked provisions of a commercial lease, especially when tenants do not hire a tenant rep broker or they hire an inexperienced broker to negotiate their lease.  

Tough Lesson Learned. 

I learned this lesson the hard way about 12 years ago when I started my career in commercial real estate as an associate at Ackerman & Co.   

I was working with one of my first clients and neglected to negotiate the HVAC language in their lease.  My oversight went unnoticed until about two years into their seven-year lease when they started having issues with their HVAC units.  Although they had properly maintained the units, the units were over 18 years old and on life support.  They were responsible for the cost to replace two units, leading to an unexpected expense that cost my client over $15,000.  

Make sure you review your HVAC clause before something catastrophic happens to your HVAC units.  You cannot afford not to review before we get into the summer months.

How to prevent costly HVAC issues

To avoid surprise costs related to your HVAC system, make sure you and your leasing representative are using these strategies:

  1. Address the HVAC lease clause upfront during the Letter of Intent stage of lease negotiations. Try and negotiate some type of warranty and/or limit on the costs for repair/replacement for the system by the landlord. 
  2. Before you sign a lease, make sure to have all of the units inspected by a licensed HVAC contractor. Uncovering any existing issues will help mitigate future unexpected expenses. You will also want to determine how long the unit is expected to last. If there are warranties on the unit, will your repairs be covered under the warranty?
  3. Make sure you understand the HVAC repair/maintenance lease clause in your lease.  Follow the required regular maintenance schedule for these systems.  If you fail to perform the regular maintenance, the landlord will not cover the cost of repairing or replacing the system.
  4. Hire a qualified licensed HVAC company to service your units and get written approval from the landlord. Some landlords require you to have a service contract in place.

At Wildmor, we use a tenant play book that includes a lease check list, so that no lease provision—including HVAC–is overlooked or missed.   

We offer complimentary lease audit services and can review your lease to better help you understand the HVAC language of your lease.

Contributed by David Ellis.

 

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