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In the Spotlight: Issues with HVAC

BY John G. Kelly
February 26, 2014

Disputes over specialized tenant improvements or exclusive heating and air conditioning systems are common in commercial leasing. Landlords and tenants often argue over maintenance and repair obligations, or whether or not such specialized tenant improvements can remain on the premises upon the expiration of the term or if the tenant is obligated to remove the alterations at the tenant's sole cost. Landlords often require such alterations be removed and the premises restored to their original condition while tenants would obviously prefer not to have to incur such large move-out expenses. With respect to exclusive heating and air conditioning systems (HVAC), typically the argument between landlords and tenants is whether or not the tenant must incur significant expenses maintaining and/or replacing a defective unit toward the end of the term at its sole cost for the benefit of the subsequent tenant of the premises. This article discusses the typical approaches to these issues, and offers suggested compromise language for office and retail commercial leases.

Types of Improvements

“Specialized tenant improvements,” as used in this article, refers to those tenant improvements that go beyond the typical office/cubicle layout for office leases, or typical fixtures or build-outs for retail tenants. For example, a tenant with sophisticated data storage needs could have supplemental HVAC systems or advanced fire suppression systems. Larger multi-floor tenants could have interior stairwells or raised floors. Many commercial tenants have unique telecom needs with extensive cabling and wiring, and medical office tenants have various types of expensive build-outs unique to their specialty.

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