Understanding Your Commercial Lease: Utilities, Maintenance, and Repairs
To understand the true cost of your commercial lease, you have to understand what utility services you’re responsible to provide and what parts of the premises you are required to maintain and repair. The discussion of utilities, maintenance, and repairs overlaps to some extent with what we discussed in our earlier common area maintenance and other pass through provisions post in the Understanding Your Commercial Lease Series. Common area maintenance provisions deal with some similar utilities, maintenance, and repair related issues. But the utilities-specific section and the maintenance and repairs-specific sections in your commercial lease will detail exactly what the tenant is required to do to maintain its utilities and the leased premises, including the extent to which the tenant is responsible for the delivery of utility services to the premises. This post gives you an overview of the main issues to consider to understand the utilities, maintenance, and repair provisions of your commercial lease:
The major services that are generally going to be delivered to the premises are detailed in the utilities section. This section discusses the landlord and tenant’s rights and responsibilities for things like heating and air condition systems (HVAC), electrical systems, and water. The importance of these services are to some extent self-explanatory, but a savvy tenant will ensure they understand exactly how the services are delivered and metered, and who is responsible for any issues associated with the delivery of utilities. As part of “utilities,” Landlords will also often provide for janitorial services, particularly in office space leases.
In a typical commercial office lease, delivery of these utility services to the premises is often the responsibility of the landlord, but the tenant pays for it (either directly or through the pass through provisions of the lease). The lease will detail when these services are delivered; in the case of HVAC, service is often going to be delivered during business hours, say from 7 am to 6 pm or 7am to 7pm, and only on certain days, normally every day of the year except major holidays. Tenants should understand those hours and negotiate, if needed, for different hours. The landlord will generally provide services outside of the stated times, but often at an additional charge called an over standard use charge.
There may be utility services that a tenant specifically needs in the space that are not “typical” for the type of space, and the tenant will need to address those specifically. A tenant shouldn’t take for granted anything that it might need to effectively run its business. Things like internet and cable connections are often left out of the utility provisions of a commercial lease, and a tenant will need to ensure those services are available at the space, if needed, before signing the lease.
A savvy tenant will also need to deal with issues like interruption of utility services. If your business is not able to function because utility services are interrupted, somebody is going to have to pay for the effect of the interruption of your business. Often it will be paid for through insurance, which is the subject of a later post in our Understanding Your Commercial Lease series. Sometimes you can negotiate for a landlord to pay for interruption in certain instances, particularly when the interruption is caused by the landlord’s negligence or intentional act. But often as a tenant you’ll need to simply prepare for the risk that utilities to your business premises may be interrupted.
Maintenance and Repairs
Another issue every tenant will want to understand is maintenance and repairs. Often there is some overlap between maintenance, repairs, and utilities, because things like the HVAC system are a utility system that will be included in the utilities section. And these utility systems are also a part of the premises that will need to be maintained and potentially repaired. But maintenance and repairs encompasses more than just utilities. It includes maintenance and repair of the entire lease premises, including floors, walls, ceilings, glass, and doors.
The lease will detail who, as between the landlord and tenant, will maintain the facilities and who will repair them. (The difference between maintenance and repairs generally is that maintenance is ongoing and an unprompted requirement, while repair is a one-time event that is prompted by some failure of a system.) A premises is generally accepted by the tenant as-is (even if the landlord may complete specific projects prior to the tenant occupying), so every tenant will want to ensure they understand the condition of the premises and all systems, and what it might cost to maintain and repair those systems.
The maintenance and repair section will detail what repairs the tenant’s responsible for (as well as what the landlord can do if the tenant drags its feet on maintaining or repairing the premises), what repairs the landlord’s responsible for, and whether the tenant has any sort of “self-help rights” if the landlord is not doing the repairs the landlord’s supposed to do. Often with tenant repairs, the landlord will provide that if the tenant does not complete a repair, then the landlord will have the ability to complete the repair and charge it to the tenant. The tenant will want to make sure that process is spelled out carefully, so that a landlord couldn’t abuse that to pass through the management fee that is often associated with the landlord making those “tenant repairs” and is a markup of anywhere from five to fifteen percent.
While you’ll want to make sure you understand that your assumptions are correct regarding who’s responsible for maintenance and repair, and you’ll want to make sure any specific needs are addressed in the utility and maintenance and repairs sections, those sections are also fairly standard. While often negotiated, these sections do not see as many contentious edits or drawn out negotiations as other parts of the lease. That being said, the importance of understanding your rights and responsibilities for utilities, premises maintenance, and premises repairs cannot be understated. You’ll need to understand the true costs of utilities, maintenance, and repairs to understand the true value of your commercial lease.