Including ADA Expenditures in "Operating Costs"

Q: I’m vigilant about making sure that the office building I recently bought is compliant with the federal Americans with Disabilities Act (ADA), but it can be expensive to do this. How can I pass some of the costs through to tenants?

A: First, you can add a clause to your leases that makes tenants responsible for ADA compliance in their own spaces. But that’s not enough. You may think you’ve adequately protected yourself by making sure that tenants foot some of the bill for their own areas, but common areas can also be very expensive to bring into compliance with ADA and, if you don’t negotiate and draft your leases carefully regarding this issue, you might have to take on these costs.

For example, if you have bathrooms that are open to the public, you may have to renovate them to make sure they meet ADA guidelines. Other common areas, such as the parking lots, sidewalks, lobbies, and elevator cars must also be made to comply with the ADA over time. You can try to pass these common area ADA compliance costs through to your tenants by including them in your definition of operating expenses—that is, CAM costs.

Be prepared for pushback from some tenants, who could argue that these costs should be excluded as “capital costs.” You can point out that these costs should be passed through if they’re incurred to comply with a law—like the ADA—that was inapplicable to the building when it was built. A strong tenant might not budge here, but compromise and agree to pass through a portion of these costs each year.