Heating, ventilation, and air-conditioning systems, commonly referred to by the acronym HVAC, serve many purposes in commercial buildings. It keeps people comfortable in office buildings, protects inventory in a warehouse, and even improves indoor air quality. Structuring maintenance, repair, and replacement of such an important system is crucial in a lease. Both tenants and landlords should be aware of the building’s HVAC condition and what costs they are responsible for.
A common way to allocate responsibility for HVAC is to have the tenant pay for maintenance/repairs and the landlord pay for replacement. It is a good idea for the landlord to require a contract between a qualified HVAC service company and the tenant. A service contract insures that maintenance tasks such as filter changes and duct cleanings are performed properly. Tenants responsible for maintenance should also be responsible for replacement of a damaged system if caused by their negligence.
Tenant Pays All
From a landlord’s perspective, a clause in the lease that obligates the tenant to pay all costs associated with HVAC seems like a great option. However, something to consider is that with this type of responsibility tenants might need to make expensive repairs/replacements near the end of their lease which could cause tensions in the tenant/landlord relationship. Problems in the system could possibly go unaddressed, especially if the tenant is close to the end of their lease.
Annual caps for tenants limit the amount of money that a tenant is responsible for when it comes to HVAC maintenance, repair, and replacement. The agreed upon dollar amount for the cap is the maximum per year that the tenant is responsible for with all additional repair/replacement costs passed on to the landlord. A different way to limit tenant responsibility is a clause that prorates the cost of replacing the system only for the remainder of the tenant’s lease. For example, the cost of a new HVAC system would be divided by its useful life (12-15 years average) to get a per year cost of the new unit. This number would be billed to the tenant for each remaining year of the lease. This clause helps tenants who face significant repairs or replacements later in their lease and lessens the chance of tenant negligence.
Tenants and landlords should choose a method to allocate responsibility of HVAC costs in a lease to prevent conflict and discrepancies. A well written and understood HVAC clause allows the whole leasing process to go smoother.
Dylan Pumphrey interns at SVN | Dunn Commercial while finishing his Real Estate degree at the University of North Texas. He is focusing on the industrial sector of commercial real estate in the Arlington/Mid-cities area of Dallas-Fort Worth. In his free time he loves to hike and bike around his home in Denton, Tx.