Who Pays for ADA Compliance in a Commercial Lease?

Title III of the Americans with Disabilities Act applies to businesses, including nonprofits, that serve the public, according to ADA.gov. The federal regulation, 28 CFR 36.201(b), says that both the landlord who owns the building and the tenant who owns or operates the place of public accommodation are subject to the rules, and that the two may allocate responsibility in the lease or another contract.

The Justice Department’s Title III Technical Assistance Manual explains the limit plainly. It says that any allocation in a lease or other contract is only effective as between the parties, and that both landlord and tenant remain fully liable for compliance. In its shopping center example, the lease gives the tenant the duty to remove barriers, and if the barriers remain, both the landlord and the tenant would be liable for violating the ADA.

This is the main point for a tenant to absorb. If someone files a claim, the lease does not decide who can be named. It decides who should ultimately pay, and only if the other party can and does honor it.

Allocation is not immunity. A lease clause that makes the landlord responsible gives you a claim against the landlord. It does not give you a defense against the person who could not get through your door.

The duties depend on what your space is, and there are two main categories. The Technical Assistance Manual says that Title III’s new construction and alteration requirements cover commercial facilities, including office buildings, factories and warehouses, and places of public accommodation are covered more broadly.

• Place of public accommodation. A business that serves the public on site, such as a shop, restaurant, clinic or a professional office receiving clients. ADA.gov says these businesses must remove architectural barriers where that is readily achievable, which it describes as easy to do without much difficulty or expense.
• Commercial facility. A workplace not open to the public, such as a closed office or warehouse. It must meet the standards when newly built or altered.

Readily achievable depends on the size and resources of the business, and ADA.gov says businesses with more resources are expected to remove more barriers. The ADA primer for small businesses says the obligation is a continuing one, so an item you could not afford last year may be expected this year. Separate rules on employment and on state and local accessibility codes may also apply, so ask your attorney and your architect what covers your space.

For most tenants, the real ADA cost arises when work is being done. Under the small business primer, an alteration must be made accessible to the maximum extent feasible, while normal maintenance such as reroofing, painting or wallpapering is not an alteration.

Then comes path of travel. Under 28 CFR 36.403, when an alteration affects a primary function area, such as an office or work area, a bank lobby or a meeting room, the path to that area and the restrooms, telephones and drinking fountains serving it may also have to be accessible. The regulation treats that added work as disproportionate when its cost exceeds 20 percent of the cost of the alteration to the primary function area. Costs that count include widening doors, adding ramps and making restrooms accessible. Splitting work into smaller projects does not avoid this, and the rule can look back three years. Confirm how the current rule applies with your architect and attorney, since rules can change.

Paragraph (d) of the same section speaks directly to leases. It says that tenant alterations in areas only the tenant occupies do not trigger a path of travel obligation on the landlord for areas under the landlord’s authority, if those areas are not otherwise being altered. So a tenant build-out may leave a tenant dealing with its own area, while a lobby or a common restroom stays as it is. Ask your architect what that means for your specific suite and which items in your plans could still affect the tenant.

Landlord forms often push all legal compliance to the tenant, including conditions that existed before you arrived. A workable allocation follows control: each party handles the areas and work it controls.

• ✓Is the landlord responsible for common areas, including entrances, lobbies, elevators, shared restrooms, parking and exterior routes?
• ✓Does the landlord represent that the building and the premises comply on delivery, or at least disclose any known claims and surveys?
• ✓Is the tenant responsible only for its own premises, its own work and its particular use, and not the whole building?
• ✓Who pays if our build-out triggers work outside our premises? Is that cost part of the landlord’s work, deducted from our allowance, or ours?
• ✓Who pays for code changes that take effect after the lease begins?
• ✓Can the landlord pass through its own ADA work in operating expenses? If so, is it amortized, capped or excluded?
• ✓Does the work letter say who is responsible for ADA compliance in the plans and the final construction?
• ✓Do indemnities run in both directions, each side covering failures in what it agreed to do?
• ✓Does a restoration requirement at move-out avoid forcing you to remove accessibility improvements?

Because liability to the public stays with both of you, consider whether the party who promises to pay can actually pay. An indemnity from a landlord entity or from a small tenant is only as good as its finances and insurance.

1. Have your architect walk the route from the parking or the sidewalk to your space, including doors, elevators and restrooms, before the lease is final.
2. Ask the landlord for any accessibility surveys, past work or claims.
3. Price likely items, and decide whether to ask the landlord to fix them before delivery or to allocate them in the lease.
4. Include any compliance work in the build-out budget and the schedule.
5. Keep records of what was done and why, including what you decided was not readily achievable. Your attorney can advise you on how.
6. Ask your CPA about tax incentives before you commit to the work.

On the last point, the ADA primer describes two federal incentives: the Disabled Access Credit under Section 44 of the IRS Code for businesses with 30 or fewer full-time employees or revenues of $1 million or less, and the Section 190 deduction of up to $15,000 per year for businesses of all sizes. These numbers can change. Confirm eligibility and current limits with your CPA.

ADA language rarely attracts attention until a plan review or a demand letter arrives. It is much easier to allocate early, while the landlord is still competing for the deal, and while your own architect can still influence the plans.

Tenant Advisory Group represents tenants and buyers, including healthcare practices and other businesses that receive the public. We raise compliance allocation in the lease comments and work with your architect and attorney so that the work letter, the operating expense clause and the indemnity tell the same story. The legal conclusions are for your attorney. We focus on who pays and on keeping that cost in view when you compare your options.