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San Diego Commercial Leases: Who Pays if The HVAC Goes Out?

Who pays if the HVAC — heating, ventilation, and air conditioning — stops working depends on what was negotiated in the lease. Repairing or replacing an HVAC system can be very expensive. Consequently, you should have an experienced San Diego corporate attorney review any potential commercial lease and negotiate any and all repair/replace clauses. As a practical matter, who pays for a complete overall of an HVAC system tends to be a function of the size of the lease. The bigger the size of the leased space, the more likely it is that the landlord/lessor will require that the tenant pay for the repair/replacement. In general, for large commercial spaces, lessors want a pure triple-net lease where the tenant is responsible for all taxes, insurance, costs, and expenses. However, even with the largest of leases, efforts to negotiate should be undertaken.

With respect to seasonal and annual maintenance of an HVAC system, a commercial tenant is almost always asked to undertake those duties and assume those costs. Generally speaking, commercial tenants are expected to pay for maintenance and upkeep for their commercial spaces. Maintenance and simple repairs tend to be low cost and can be seen as part of the administrative overhead. This is one major difference between commercial and residential leases. As such, most tenants are willing to accept the responsibility for HVAC maintenance. But HVAC maintenance can be subject to negotiation, too, and with smaller commercial leases, there are some lessors who prefer to undertake the maintenance to ensure that it is done and done properly.

Aside from the size of the leased space, the other key factor in “who pays” is whether an HVAC is dedicated wholly to one commercial space or whether it is shared. If the HVAC system is dedicated to one space, then it is more likely that the lessor will require the tenant to accept responsibility for maintenance, repair, and complete replacement if necessary. By contrast, if the HVAC system is shared among several leased spaces, then it is more likely that the lessor will be responsible. The practical issue with a shared HVAC system is apportioning costs among the tenants and differential use by the tenants that might cause tension/conflict.

If you are a proposed tenant and you are being asked to accept responsibility for HVAC maintenance, repair, and replacement, you should undertake several steps. First, as discussed, enter negotiations. Second, you should negotiate representations and warranties in the lease made by the lessor with respect to the HVAC system. In particular, you want the lessor to state and warrant that the HVAC system is in “good working order” and that the lessor “has no knowledge that the HVAC system will need major repair or replacement during the term of the lease.” With such representations and warranties, you will have legal options if the statements turn out to be false.

If the lessor will not make such representations and warranties, then you should have the HVAC system inspected before signing the lease. A good HVAC maintenance/repair company should be able to tell you if the system is in good working order and should be able to advise on the expected longevity of the current system. If the system is “on its last legs,” then you should also get an estimate on the cost of replacement. The inspection report can be used to renew negotiations. If the lessor will not allow an inspection, then it may be best to find another commercial space.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.