Who Repairs HVAC, Roofs and Docks in an Industrial Lease?

Maintenance keeps a system running: filters, belts, inspections and adjustments. Repair fixes something that broke. Replacement installs a new system or a major component when the old one has reached the end of its life. A clause that just says the tenant shall maintain and repair the premises may leave the replacement question open, and a clause that adds replace answers it against you.

The lease language matters more than you might expect, because a tenant cannot count on the law to fill the gap. Bean, Kinney & Korman explains that under older common law, a tenant generally took the property as is and the landlord had little duty to repair. Modern law in some jurisdictions adds certain implied obligations, but courts look first to the lease. What your state implies is a question for your attorney, not something to rely on while signing.

Industrial buildings often have HVAC serving the office area, and sometimes part of the warehouse, with units dedicated to your space. That tends to make them your responsibility in the first draft. Finney Law Firm says the initial draft of a typical retail landlord's lease passes all maintenance, repair and replacement costs through to the tenant. Its discussion concerns retail leases, but many industrial forms raise the same question. Finney points out that such a clause could have the tenant paying for a system damaged before the lease began, or replacing a unit in the last month of the term.

Bean, Kinney & Korman identifies the same dispute: whether the tenant must buy a new system near the end of its term for the benefit of the next occupant. Three common solutions appear in law firm commentary.

• The landlord pays for the replacement and the tenant reimburses a proportionate share for the rest of its term. Finney says this also gives the tenant a reason to replace a failing unit, not to keep patching it.
• The tenant pays, and the landlord reimburses the unamortized cost of a system installed in the last years of the term. Bean, Kinney describes this mainly for larger, creditworthy tenants, with the useful life agreed in the lease or tied to GAAP or IRS rules.
• The tenant's costs are limited through a warranty or a cap, such as an annual limit, particularly if the unit's condition is a concern at the start.

Expect a service contract requirement in return. Finney notes landlords may ask for a contract with an HVAC provider, biannual or quarterly service, and a maintenance log, and that a landlord will not want to pay for damage the tenant caused by neglecting the system. Keep those records. If you ever dispute a replacement charge, they will be your evidence.

Roof clauses vary widely. In one lease the landlord keeps the whole roof. In another the tenant handles leak repairs and the landlord handles replacement. In some single-tenant forms, the tenant takes everything. The lease may also let the landlord pass through part of a new roof as an operating expense. Law firm Lowndes lists a new roof and HVAC system replacement as capital items generally not treated as routine operating expenses, but says such costs are sometimes negotiated to be amortized over their useful life and partially passed through.

Warranty language is worth reading. Ask for any roof warranty, and check its conditions on contractors and roof penetrations. If you plan to add exhaust fans, skylights, solar equipment or a new rooftop unit, get consent in the lease and a clear statement of who pays if the work affects the warranty. Also ask what happens to your inventory and operations if a roof leak damages goods or shuts down part of the floor, and read the insurance and waiver of subrogation clauses with that in mind.

Dock levelers, seals, bumpers, dock lights, overhead doors and door operators take hard use. Many leases treat them as tenant maintenance items, so condition at delivery matters. A building with worn levelers can hand you a list of repairs before you have moved a pallet.

Separate normal wear from impact damage. A truck hitting a door jamb or a forklift hitting a column is usually a tenant-side or carrier-side cost, and you may want to recover it from the carrier. In a multi-tenant building, shared truck courts and doors need a clear rule for who pays when the cause is not obvious. The truck court pavement itself is a capital question like the roof, and a replacement that gets labeled maintenance can reach you through the expense clause.

Your strongest position is before signing. Bean, Kinney notes the landlord may have an obligation to turn over a system in good working order, but do not assume it: ask for it in the lease and inspect anyway. Finney recommends an inspection of any HVAC that is not new, to determine condition and predicted useful life, plus a pass-through of any warranty on a new system.

1. Hire a mechanical contractor to inspect each HVAC unit and report age, condition and expected remaining life.
2. Have a roofing consultant review the roof, warranty and repair history.
3. Test every dock leveler, door, light and operator, and list what is broken.
4. Attach the findings to the lease negotiation, and ask the landlord to fix, replace or credit the problem items.
5. Photograph and date the condition of the building at delivery. Dykema recommends documenting condition at commencement and surrender, with signed written reports of inspections.

An inspection report does more than warn you. It gives you a dated baseline of what was already worn, which is useful in any end-of-term dispute.

• ✓For each system, who handles maintenance, who handles repair and who handles replacement?
• ✓Will the landlord state that the HVAC, roof, doors and dock equipment are in good working order at delivery, and for how long does a warranty or cure period apply?
• ✓If replacement falls to us, is the cost amortized over useful life, and do we pay only the part within our term?
• ✓If we install a new unit near the end of the term, does the landlord reimburse the unamortized balance?
• ✓Is there an annual cap on our HVAC or roof repair costs?
• ✓Who pays if the landlord's roof work causes a leak or interrupts operations?
• ✓Does our surrender clause require returning systems in better shape than we received them?
• ✓Does ordinary wear and tear get excluded at surrender, and is it clearly defined?

Your attorney should review the final language, since small wording changes decide who pays. TAG represents occupiers, and when we negotiate industrial leases on a tenant's behalf we treat building condition, repair language and surrender as linked, so that the same system is not left to cost you more than once.