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Wins & Insights

Tenant Leasing Illustrated – March 2017 – Acing Your HVAC Provision

Acing Your HVAC Provision

Luckily, February is almost over.

We made it through one paltry nor’easter snowfall and survived Super Bowl LI (LI, really?), where in a February tradition, Roger Goodell and some opposing NFL team went outside, saw Tom Brady’s shadow, and went home crying.

Amazing comeback, yes, but a more incredible sports story is that the Cameron Crazies at Duke University now require their fans to take a written test about Duke basketball just to get into the game against archrival North Carolina.

I understand it can be hard to get into a basketball game (just ask Charles Oakley), but a test?

For years, the only way to guarantee a coveted spot at this game has been to camp outside the arena in line in a tent.

The tent village, named Krzyzewskiville after the team’s coach, expanded as did its bureaucracy, with student “line monitors” and a formal constitution. Two people must be present at the tent at all times and ten people need to sleep in the tent during each night (with reduced “weekend” hours from Wednesday through Saturday).

With 30% of the student body now lining up, the crowd control solution is a written test; first an entrance exam and then a more advanced placement test to determine the order of admittance. All this to still have to sit in a tent for 21 days in the cold.

And I whine about continuing legal education classes!

In commercial leasing, testing is also important, especially when it comes to your space’s heating, ventilation and air-conditioning (HVAC) requirements.

In some leases, the landlord will provide HVAC services and the lease needs to set specific standards for such services.

In other leases, the landlord will provide the HVAC equipment along with chilled or condenser water and the tenant will be required to do the rest, in which event the tenant will need to confirm the condition of the HVAC equipment.

Further complicating matters, tenants often require additional or supplemental HVAC to meet specific needs, such as an IDF/MDF telecommunications room that generates a lot of heat and runs 24/7.

In each instance, tenants will need to combine solid due diligence with detailed lease specifications in order to ace the HVAC test.

So, when it comes time to lace up your sneakers and negotiate the HVAC provisions for your space, follow these seven suggestions:

  • Retain competent professionals. Even if you are the Mike Krzyzewski of commercial leasing (and even if you are bright enough to spell “Krzyzewski”), you do not know enough about HVAC systems to move forward without the assistance of competent professionals. An MEP engineer or architect working with an MEP engineer should examine the physical plant of your space to confirm that the HVAC equipment available is sufficient to meet your needs and intended occupancy density.
  • Require HVAC specifications. If your landlord is providing HVAC services, your lease should include detailed specifications regarding temperature and humidity levels based on inside and outside conditions. With a smaller lease and less leverage, your landlord may only agree to provide “comfortable occupancy” or HVAC similar to comparable buildings in the area, but there needs to be some performance standard.If your landlord is providing HVAC equipment and leaving performance in your hands, then it is doubly important that your engineer confirm the equipment’s performance and overall adequacy.
  • Clarify repair responsibility. If your landlord is providing HVAC services, then your landlord should also be responsible for the maintenance, repair and replacement of the building systems providing such services. If your landlord is only providing the HVAC equipment for you to run, then you should only be responsible to pay for an annual maintenance contract with a reputable servicer. Any items not covered by such maintenance contract, such as replacement of major component parts, should remain your landlord’s responsibility.
  • Clarify after-hours use. Most leases limit the (business) hours during which your landlord will provide HVAC services, but you need the ability to obtain after-hours HVAC.
  • The building’s standard charge for such overtime service should be set forth in your lease and increases over the term should also be tied to some standard (e.g., based on actual increases in costs or the CPI, or tied to a market standard). Costs of services used together with other tenants should be shared equitably. In addition, with sufficient leverage you may be able to obtain additional rights, such as (a) a “most favored nation” provision that allows you to have the benefit of any superior arrangement provided to another tenant or (b) an annual amount of “free” overtime HVAC hours.
  • Many leases also require that you provide your landlord with sufficient notice of the need for such overtime services. In today’s modern buildings, a long lead time should not be required, although in some instances your landlord may need an engineer available to run the system.
  • Note that if you are responsible for the day to day maintenance of the equipment, you should be entitled to run the HVAC with no limitations, provided that you pay for the actual cost (i.e., the electricity, water, etc.) to run the equipment.
  • Address supplemental needs. You should have an affirmative right to install a supplemental HVAC system, including a license for all necessary connections (e.g., conduit) outside your space. Your engineer can determine the best system for your premises, along with the necessary operational accompaniments, such as chilled water or condenser water in sufficient quantities, the installation of louvers for an air based system, etc. Note that the cost for such chilled or condenser water should be specified in your lease with increases handled similarly to overtime services as provided above.
  • Reserve for the future. If you need some time to finalize your design and determine your specific needs for chilled water or condenser water, try to reserve the right to use “up to” a certain amount of water with an obligation to specify that amount at a later date or to be able to increase the size of the amount reserved to you (although your ability to increase will generally be subject to the rights and reasonably anticipated needs of other tenants).
  • Consider monitoring/control needs. Some tenants will negotiate for the right to monitor the building’s HVAC system serving their premises through its own Building Management System, and for larger tenants with sufficient leverage even the right to control the components serving their premises.

This is Leasing Illustrated’s newsletter LXII (issue 62 for you non-Romans) and people do often camp out in tents waiting for the next issue (not sure why, we have your email addresses); but if you follow the seven suggestions above, at least your HVAC provisions will not leave you out in the cold.