on April 28, 2017
It often comes as a surprise to commercial tenants that they are responsible for repairing and maintaining most of the equipment in their commercial space. This can prove both frustrating and expensive when an outdated air conditioner breaks in the middle of summer. To avoid these frustrations, tenants should (1) review the specific requirements in the lease, with an eye on some of the below specific applications; and (2) have a professional evaluate the life and value of each piece of equipment the tenant is required to maintain.
Servicing Exclusively the Premises
When a lease requires a tenant to repair and maintain equipment, the commercial leasing lawyers typically haggle over what specific equipment is required to be maintained. The usual approach is to require the tenant to repair and maintain equipment that “exclusively serves” the rented space. Meaning, the landlord is required to maintain equipment that serves the entire building (e.g. the building plumbing) but the tenant is required to maintain equipment that only serves the space (e.g. plumbing located in the tenant’s bathroom). All buildings and all rental spaces are different, so it is imperative to negotiate, with as much detail as possible, what equipment truly “exclusively serves” the premises. Often, as is usually the case with air conditioning and HVAC, the line between a building system and a premises-specific system is blurred.
Air Conditioning and HVAC
Air conditioning and HVAC units are some of the more contested elements in maintenance/repairs provisions of leases. These systems are critical because they can completely destroy a tenant’s ability to operate its business if they fail and they are often expensive. Moreover, these systems are often tied to other systems within the building and therefore it is difficult to pinpoint who should absorb the cost. As stated above, tenants should enlist a maintenance or engineering expert to determine (1) the life of the air conditioning and HVAC system; and (2) fully describe the interplay between the tenant’s systems and the building’s systems.
A grease trap, which is a plumbing apparatus used to collect cooking grease before it enters the wastewater system, is particularly important for restaurant commercial leases. In every restaurant lease I have negotiated, the tenant is responsible for cleaning and maintaining the grease traps. Leases typically state that tenants must “regularly” clean and maintain their traps, but sometimes a lease will provide for specific periodic cleanings (e.g. once a month) and even specify the contractor the restaurant owner must use. The above language is fairly standard, but one important piece that is often overlooked is the location of the actual grease trap. While ordinarily located within the restaurant, grease traps are sometimes located in separate areas, in other adjacent units, and even outside of the premises. As such, tenants and landlords alike should discuss and agree to how and when grease traps should be cleaned. Otherwise, tenants will have headaches in trying to access the very thing they agreed to clean, and landlords may have other tenants angry because the grease trap equipment is interfering with their business. I once had a client whose grease trap was located in the basement of an adjoining unit, which happened to be a merchandise showroom. Although my client cleaned the grease trap as required, they also inadvertently dragged grease throughout the showroom, much to the frustration of the other tenant.
The confusing crossover between all repair and maintenance issues is when repair and maintenance are covered as part of operating expenses. In larger buildings, tenants will have to pay, in addition to rent, a portion of the landlord’s operating expenses for the building. This portion often covers some of the building’s overall maintenance and repair costs. As such, even if something is not a direct tenant expense, the tenant may end up covering the cost (or a portion) through the payment of operating expenses. It is therefore imperative that tenants ensure their maintenance and repair obligations are consistent with what is covered under operating expenses.
The above is a simplified summary of different approaches to equipment maintenance for a commercial space. Each situation is different, and often different locations will have differing “standards” for how leases are structure. For example, in the Boston area, the standard provisions for commercial leases in Cambridge often differ from those in the City of Boston. In fact, the standards in different neighborhoods in Cambridge (e.g., Kendall Square) often deviate from other neighborhoods (e.g., Harvard Square). As such, it is critical that both landlords and tenants speak with a commercial real estate attorney before executing a commercial lease.