HVAC in Commercial Leases: Better Drafting = Better Bottom Line

In 2015, Service Champions, a national HVAC installation company estimated that the average cost of an HVAC system ranges from $6,000 to $12,000. Now imagine you are a franchisee, or a small business owner leasing commercial space when the pre-existing HVAC system breaks down. Your first thought might be that the landlord is responsible.  However, if your lease is not carefully drafted then it might be your responsible for that big replacement bill.

 How can a tenant leasing commercial space avoid the crippling costs of an HVAC repair or replacement? It’s almost certain to happen at some point during the average commercial lease. According to Dominion Service Company, the average life of a commercial HVAC system is 15 years, but when the HVAC system is being used in a restaurant, the life expectancy is significantly shorter, as the system must work harder to cool the heated kitchen or back of the house space. However, exactly can a tenant avoid, or limit these costs? An experienced commercial leasing attorney can insert the proper HVAC clause into the lease. When drafted appropriately, an HVAC lease provision can limit the tenant’s cost when the HVAC unit is used, or in need of replacement or repair, or eliminate tenant liability for the cost altogether. The tenant’s exposure mostly relies upon the willingness of both the landlord and the tenant to agree on the exact verbiage of the clause.

Before any landlords get upset and stop reading this article, the provision can also be used to benefit both the tenant and the landlord. While an HVAC provision can limit the tenant’s exposure to a potential repair or replacement of the HVAC unit, it can also lay out specific details as to how the cost of the repair or replacement will be carried out so that the landlord is not obligated to the entire cost. Another benefit to landlords is a provision that has language about the tenant’s misuse of the system or their failure to properly maintain the system, which would result in the landlord not being liable for any of the expenses in those specific situations. Such measures, such as requiring scheduled maintenance in the lease can extend the life of an HVAC system, and keep the overall costs to the tenant and landlord to a minimum.

Whether you are a landlord or a tenant, consulting an attorney with commercial leasing experience prior to entering into a commercial lease can save you time, money and trouble. HVAC units fail and need repairing far more often than we estimate and whether you are a small business or a large business, $6,000 to $12,000 would hurt anyone’s operating budget. Be sure to consult an experienced commercial leasing attorney to minimize exposure to such a repair or replacement costs. 

Written By: Tayler M. Hudson, Summer Associate at the Marzella Law Group, PLLC and Rising 3L at North Carolina Central University School of Law.