Address Common Area ADA Upgrades in Lease

Over the years, commercial real estate owners and tenants have hammered out many issues surrounding compliance with the Americans with Disabilities Act, often specifying in their leases which party will be responsible for compliance. But if you don’t draft your lease terms carefully with a tenant that plans to do construction at your building or center, you could face an issue that is still controversial: who is responsible for making sure that common areas are up to ADA standards. Sacramento attorney Winnifred C. Ward explains how you should handle this situation, which may spark pushback from some tenants—and increase your costs—if you’re not aware of it.

Tenant’s Work Triggers ADA Requirements

Traditionally, even if a tenant performed the construction work in its space for a buildout, improvements, or upgrades, the owner could still be liable for ADA violations if its lease didn’t address it. So if your tenant failed to follow ADA guidelines when constructing, say, a staircase in its space, you could potentially be left on the hook.

That’s why, now, in a situation where the tenant controls the work, standard leases provide that work will be performed “in compliance with all applicable laws, including without limitation the Americans with Disabilities Act.” This makes the tenant completely responsible for ADA compliance within the premises, notes Ward. This isn’t unreasonable; in a typical lease for space at a multi-tenant center or building, the tenant is expected to be completely responsible for ADA compliance in its space. If there’s an ADA claim within a premises and the owner is sued, it will be indemnified by the tenant, notes Ward.

Most tenants expect that scenario. “Where the pushback is between owners and tenants is the common area and the ‘path of travel’ issues that arise in the common area when work that’s being done in a tenant’s premises affects the common area,” says Ward. For instance, if a tenant pulls a permit for either initial tenant improvements or alterations in its premises and a portion of the common area—the so-called path of travel—is affected, that area must be ADA compliant.

“If any of those paths of travel aren’t ADA compliant, the issue is who is responsible for ADA compliance,” Ward points out. The tenant’s position is that it’s a common area, so it’s the owner’s responsibility for ADA compliance because the owner controls it and, generally, items in the common area would be the owner’s responsibility, she says. However, the owner would argue that under the ADA, upgrades to make a space compliant aren’t required in existing buildings unless a permit is pulled, Ward notes. So, the issue is that, but for the tenant’s construction work, the owner wouldn’t have to make the existing common areas ADA compliant if they aren’t already.

Check State Accessibility Laws

Ward points out that common area responsibility has become a huge issue in California because state accessibility laws that went into effect in 2012 overlap with ADA and also set new standards. For example, when an owner leases property it has to disclose whether an accessibility survey by a “CASp” (Certified Access Specialist) has been done for the building, and if it has, whether it disclosed that the building was in compliance with the state’s accessibility standards.

Some California owners are motivated to do a survey because if they do a survey and complete the work, they have increased protection from accessibility lawsuits. Ward warns that owners should always check to see whether their state’s accessibility standards are different from ADA and impose additional requirements. 

Practical Pointer: Savvy tenants will realize that knowing about potential required upgrades to common areas and identifying troublesome issues will help them predict what ADA upgrades a building inspector will require. Don’t be surprised if a tenant asks to see any ADA surveys you have. If you don’t have one, a tenant may decide to pay for its own ADA survey of the building.

Address ADA Issue in Lease

To some degree, the relative leverage of the tenant and owner will determine who prevails when it comes to paying for ADA compliance, but, hopefully, it’s been addressed in the lease, says Ward. She says that some leases are vague and don’t include responsibility for common area work, which leads to trouble later.

Ward says that, typically, you want your lease to: (1) define ADA; (2) define whether you or the tenant is responsible for upgrades in common areas; and (3) specify carve-outs, such as agreeing that you are responsible for the common areas unless an upgrade is necessary because of the tenant’s alteration of its premises, or because the tenant’s specific use of its premises that is different from other tenants in the building triggers the need for upgrades.

To accomplish this, ask your attorney about adapting our Model Lease Clause: Make Tenant Responsible for Certain ADA Upgrades.

Allocating ADA Upgrade Costs

Typically, the biggest compliance-with-law issue that most owners and tenants are concerned about is paying for ADA upgrades, says Ward. How is the cost going to be allocated?

The most important thing owners should remember is that identifying up front who will pay will save them from an unpleasant—and expensive—surprise later. Putting in a ramp or elevator cab that costs a significant amount should definitely be determined up front. And, of course, factors such as the specific use of the tenant, who’s doing the work, and who triggered the upgrades will be determinative, she adds.  

ADA upgrades can be pricey, but remember that in some cases, even if you pay for them, the tenant will ultimately share some of the burden. For example, a triple net lease or a base-year or full-service gross lease will have a pass-through so the tenant eventually will still end up paying for it through common area expense charges, says Ward.

Insider Source

Winnifred C. Ward, Esq.: Partner, Stewart, Ward & Josephson, LLP, 1601 Response Rd., Ste. 390, Sacramento, CA 95815; www.swjllp.com.