Make Tenant Pay Utility Costs for Its Supplemental HVAC System

January 1, 2004

A tenant may want to install a supplemental HVAC system in its space—especially if it wants to ensure that its computers and other equipment will never overheat. But a supplemental HVAC system typically gobbles up a lot of electricity or natural gas (depending on the type of system). As a result, the tenant may use a lot more energy than is standard in your building. And that may cause a big increase in your building's utility bill and complaints from your other tenants, since they must share in paying for the increase.

A tenant may want to install a supplemental HVAC system in its space—especially if it wants to ensure that its computers and other equipment will never overheat. But a supplemental HVAC system typically gobbles up a lot of electricity or natural gas (depending on the type of system). As a result, the tenant may use a lot more energy than is standard in your building. And that may cause a big increase in your building's utility bill and complaints from your other tenants, since they must share in paying for the increase.

Not surprisingly, you'll want the tenant to pick up the tab for all utility costs attributable to its supplemental HVAC system. But if your lease is like many we've seen, it may have this costly loophole: It doesn't require the tenant to pay those extra utility costs. So you and the tenant could end up in a dispute over who's responsible for paying them. Sacramento attorney Thomas F. Stewart has seen many such disputes, lately. He says that the leases in those disputes hurt the owners by not addressing the topic or by being ambiguous.

To plug this loophole, Stewart suggests that your lease cover three key points about utility usage for supplemental HVAC. There's a Model Lease Clause on p. 7 that you can adapt and use for your lease and that has these key points.

Three Key Points to Address in Your Lease

Make sure that your lease, like our Model Lease Clause, addresses these three key points, says Stewart:

  • Tenant pays utility costs. Say in the lease that the tenant must pay all of the utility costs attributable to its supplemental HVAC system, says Stewart [Clause, par. a]. This way, there's no doubt that the tenant is solely responsible for those costs.

  • You determine utility costs. Get the right to determine the amount of the utility costs attributable to the tenant's supplemental HVAC system, says Stewart [Clause, par. b]. Otherwise, you and the tenant might end up arguing over who has the right to make that determination and what the amount of the extra utility costs should be.

  • Get right to install meter. Get the right to install a meter or other measuring device in the tenant's space, says Stewart. The meter or measuring device will let you more accurately determine the tenant's utility usage, he explains. And make it clear that the tenant is solely responsible for paying the cost of installing the meter or measuring device, he adds [Clause, par. b]. Otherwise, the tenant could argue that you're responsible for that cost.

CLLI Source

Thomas F. Stewart, Esq.: Partner, Trainor · Robertson, 701 University Ave., Ste. 200, Sacramento, CA 95825; (916) 929-7000.

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