Meticulously Draft ADA Requirements Throughout Lease
Violating the Americans with Disabilities Act (ADA) can be costly for commercial real estate owners. It’s a complicated law with nuances that create pitfalls for owners. While the ADA is detailed in terms of spelling out under what circumstances a building’s or a tenant’s space must be altered to make it accessible to people with disabilities, it doesn’t say who is responsible for making and paying for these alterations. That is, are owners or tenants on the hook for ensuring that accommodations are made and any violations that stem from them?
If you think that you’ve protected yourself by adding a clause to your lease that makes the tenant responsible for ADA compliance in its space, that’s not enough. You may need to change other lease clauses, too; if you don’t you could end up paying a fine for an ADA violation the tenant caused. Or you could be forced to pay for expensive ADA alterations outside the tenant’s space that are required because of something the tenant did.
Work with your attorney to review your leases with an eye on ADA compliance and shifting cost and responsibility for that to tenants. Here are the top 12 key clauses to focus on and why you should take them seriously.
Key Clause #1: Compliance with Laws
Most leases require the tenant to comply with all laws, codes, and other governmental requirements in connection with the tenant’s use and improvement of its space. But go one step further: Specifically include “without limitation” the ADA as a law with which the tenant must comply.
The extra step is necessary because in your “compliance with laws” clause, you may specifically mention other laws by name, for example, environmental laws; if you don’t mention the ADA, a tenant could argue that you meant to omit it from the tenant’s compliance responsibilities. This has become common practice in commercial leases, so you shouldn’t experience much if any pushback from tenants.
Key Clause #2: Tenant’s Alterations
Once the tenant starts altering its space, multiple ADA compliance responsibilities are triggered. So make sure the tenant’s alterations clause says the following:
All alterations must comply. Require all of the tenant’s alterations to comply with all laws—specifically the ADA. In the alterations clause, say that all of the tenant’s alterations must be made “in compliance with all laws, including, without limitation, the Americans with Disabilities Act of 1990 and all regulations issued hereunder.”
Your consent is optional. Even though you’ve barred any alteration that doesn’t comply with the ADA, you should protect yourself even further by giving yourself the right to withhold consent to a tenant’s planned alteration that doesn’t comply with the ADA. If you’ve agreed in the lease that you won’t unreasonably withhold your consent to the tenant’s alterations, add the italicized portion of the following lease language to the list of reasons why you may without consent.
Model Lease Language
Landlord may withhold its approval of any alteration, addition, or improvement that requires work which: …does not comply with any applicable laws (including without limitation, the Americans with Disabilities Act of 1990 and all regulations issued thereunder) or requires other alterations, additions, or improvements of the Premises or common areas of the [Building/Center] in order to comply with applicable laws.
Even minor alterations must comply. Many leases allow tenants to make minor alterations without the owner’s consent. If you agree to this in the lease, make sure you require that these minor alterations comply with the ADA. In the section where you discuss minor alterations, require them to be made “in compliance with all laws, including, without limitation, the Americans with Disabilities Act of 1990 and all regulations issued hereunder.” While it may seem like overkill to include ADA requirements in multiple sections of the lease, it serves the additional purpose of reminding the tenant early and often that all of its alterations must comply with the law.
Get right to withhold consent if alteration leads to further work. While the tenant’s alteration may comply with the ADA, it may also trigger the need to make another alteration elsewhere in the building to comply with the ADA. So give yourself the right to withhold consent to a tenant’s alteration that will require any alterations elsewhere in the building. Otherwise, the tenant's alterations might trigger further ADA compliance requirements in an area that would fall within your responsibility—for example, structural alterations or alterations in the common area, such as the parking lot or elevator. Although ADA guidelines say that the tenant’s alterations to its space won’t trigger an owner’s obligation to alter the “path of travel”—that is, through common areas to the space—to make it comply with the ADA, other tenant actions could force you to make these alterations.
Model Lease Language
Anything herein to the contrary notwithstanding, Tenant shall not make any alterations, additions, or improvements in the Premises without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole discretion, if such alteration, addition, or improvement to be performed in or made to any portion of the [Building/Center] other than the Premises.
If the tenant balks at this absolute right to withhold consent, you can compromise and say you’ll agree to give the tenant consent to the alteration if it agrees to cover any ADA compliance costs you could incur as a result of its alterations.
Your consent to alterations doesn’t mean plans comply. Say that your consent to the tenant’s planned alterations isn’t an assurance—that is, a “representation”—that these alterations will comply with the ADA or any other law. Otherwise, a court could rule that your consent to the alterations amounted to saying that the alterations complied with the ADA. If it then turns out that the plans don’t comply, you could be held responsible.
Model Lease Language
Landlord’s consent to such alterations, additions, improvements or Landlord’s approval of the plans, specifications, and working drawings for such alterations, additions, or improvements shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules, and regulations of governmental and quasi-governmental agencies (including, without limitation, the Americans with Disabilities Act of 1990 and all regulations issued thereunder).
As an added protection, you may also want to say that the tenant and its architect are responsible for making sure that the alterations comply with the ADA.
Keep in mind that if your new tenant does its own buildout work, it will need your prior approval of its buildout plans before it does the work. Make sure you add the same type of ADA language to the work letter or lease clause that deals with these plans as you did to the alterations clause.
Key Clause #3: Repairs
If the lease requires the tenant to make any repairs, be sure to say that these repairs must be made in compliance with all laws including the ADA. To do this, ask your attorney about adding language similar to that suggested for the alterations clause.
Key Clause #4: Operating Expenses
You may incur expenses bringing the common areas in your building or center into ADA compliance. 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 elevators must also be made to comply with the ADA over time. Try to pass these costs through to your tenants by including your ADA compliance costs in your definition of operating expenses or common area maintenance (CAM) costs.
Expect pushback; the tenant will probably argue that these costs should be excluded as “capital costs.” You should argue in response 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. You might not have luck with a large tenant or one with leverage, but smaller tenants will be more likely to agree, and it’s worth the time spent negotiating for you.
Key Clause #5: Change Common Areas
Most owners are careful about having an absolute right to change or expand the common area. But if you’re dealing with a powerful tenant, like an anchor tenant, it may demand that you get its prior approval before you make certain changes. If you’re forced to give the tenant some input here, make sure you still have a right to make any changes that are necessary to comply with the ADA.
Model Lease Language
Notwithstanding the foregoing, Landlord will have the right, which shall not be subject to Tenant’s prior notice or approval, to change the size, use, shape, or nature of any common areas, including erecting additional buildings on the common areas, expanding the existing [Building/Center], or altering the common areas to comply with the Americans with Disabilities Act of 1990 and all regulations issued thereunder.
Practical Pointer: You may want to add that any costs you incur here will be included in CAM or operating expenses.
Key Clause #6: Tenant’s Use
Guard against a situation where a change in the tenant’s use leads to increased ADA responsibility for you or the tenant. For example, many owners will agree to draft the use clause so that it allows the tenant to use space for “any lawful office use.” But an office tenant that the ADA categorizes as a “commercial facility” (like a publisher) may change to an office tenant that the ADA categorizes as a place of “public accommodation” like a law firm. A place of public accommodation must comply with much tougher ADA obligations so the office space must be altered. You may even have to make changes to the common area because of this change in classification of the tenant’s space.
The best way to protect yourself is to draft a use clause that’s very specific about how the tenant may use its space. For example, say that the space may be used only as offices for a publishing company.
But the tenant might not accept such a specific use clause. Another way to protect yourself is to make the tenant responsible for any ADA compliance costs you incur as a result of any changes it makes in its use. If you want the tenant to make alterations—rather than reimburse you for the costs—you’ll have to modify this language:
Model Lease Language
If, as a result of the Tenant’s use and occupancy of the Premises or the making of any alterations, additions, or improvements therein, any additions, alterations, or improvements shall be required to be made by Landlord to any part of the Premises or the [Building/Center] to comply with any requirements of the Americans with Disabilities Act of 1990 and all regulations issued thereunder, Tenant shall reimburse Landlord on demand for the costs incurred by Landlord to effect such compliance.
Consider that some owners go one step further in their leases with office tenants and in the Prohibited Uses section of the lease ban any use that’s considered a place of public accommodation under the ADA. It’s an extreme strategy and won’t be realistic to negotiate with all tenants.
Key Clause #7: Assignment and Subletting
An assignment or sublet creates the same type of ADA risk as a change in use. Say your office tenant—a commercial facility—sublets to a law firm, which is a place of public accommodation. At that point, the space must meet greater ADA obligations. This can have a huge effect on areas of the building that are within your control, such as the common areas. For example, you may have major obligations if the conversion of office space to a place of public accommodation makes this the first public place of accommodation in the building (that is, all other tenants’ spaces are commercial facilities). There are several ways you can protect yourself. Choose from these strategies:
Hardline: Get right to withhold consent. As a hardline position, you may want to give yourself the right to withhold consent to any assignee r subtenant that would lead to increased ADA responsibilities on your part, unless the tenant pays the estimated costs of all parties’ ADA compliance up front. But this open-ended financial commitment may frighten a tenant. Or a court may refuse to enforce this type of clause.
Compromise: Make tenant’s assumption of compliance responsibility a condition for your consent. Instead, give yourself the right to require, as a condition of your consent to the sublet or assignment, that either the tenant, the subtenant, or the assignee pay for (or make, if you choose) any necessary ADA-related alterations. This strategy should be more acceptable to tenants.
To play it safe, you may want to require the tenant to give you a deposit beforehand that represents a percentage, say, 20 percent, of what you reasonably anticipate the cost of these alterations to be. Your architect or an ADA expert can give you an estimate.
This language assumes you’ll make the alterations. You’ll need to modify it if you want to make the tenant responsible for handling the ADA alterations.
Model Lease Language
As a condition to its consent required by this Clause, Landlord may require, at its sole option, Tenant (or its assignee or subtenant) to agree to reimburse Landlord on demand for the costs incurred by Landlord to comply with the Americans with Disabilities Act of 1990 and all regulations thereunder as they apply to the use, occupancy, or alteration of the Premises; and Tenant shall be required, upon Landlord’s demand, to deposit with Landlord [insert percentage, e.g., twenty (20) percent] of Landlord’s reasonable estimate of the cost of such alterations.
Key Clause #8: Owner’s Representations
The tenant may demand that you include in this clause a representation that the building complies with the ADA. Don’t agree to give this representation, though. Even softening this representation by saying that the building complies with the ADA “to the best of your knowledge” won’t adequately protect you. Either way, that representation is risky for you. ADA compliance standards are sometimes ambiguous. And since your financial ability to pay for the alterations and the cost of the alterations are both factors that determine whether you must legally make these alterations, your compliance status may change from day to day, as your bank account and the cost of the alterations change.
The best solution is to shift the obligation to the tenant. During the lease negotiations, tell the tenant to look at the building itself and decide whether it complies with ADA requirements—that is, do its own “due diligence.”
If the tenant isn’t satisfied with this approach and you haven’t gotten any notice or threat of a lawsuit or regulatory action alleging a violation of Title III of the ADA, you can compromise by saying so in the lease.
Model Lease Language
As of the date of the execution of this Lease, Landlord has not received: (i) any notices from any governmental or quasi-governmental agencies alleging violation of Title III of the Americans with Disabilities Act of 1990 (ADA) or any regulation issued thereunder; (ii) any notices of claims made or threatened regarding noncompliance with the ADA; or (iii) any notices of any governmental or regulatory actions or investigations instituted or threatened regarding noncompliance with the ADA as to any portion of Premises or [Building/Center].
Key Clause #9: Notice of Violations
If the tenant is accused—whether by the government or a private individual—of committing an ADA violation under Title III, you’ll want to know about it. If you’re aware of the potential fine or lawsuit, you can take fast action to get the tenant to make the necessary ADA alterations. And you can keep a close eye on the tenant to make sure it finishes up the alterations. Otherwise, you may find out when it’s too late to avoid a penalty stemming from the tenant’s violation of the ADA. You may be held jointly responsible. And even though you and the tenant agreed in the lease that the tenant would be responsible for ADA compliance in its space, you won’t be protected from a third party’s lawsuit or a government action.
Require the tenant to notify you if it gets any notice alleging any ADA violations under Title III in its space. This should cover any notice alleging an ADA violation (say, from the U.S. Department of Justice), any written claims made (from an individual) threatening to sue for noncompliance, or any governmental actions or investigations that are started or threatened against the tenant.
Model Lease Language
Within ten (10) days after receipt, Tenant shall advise Landlord in writing and provide Landlord with copies of (if applicable): (1) any notices alleging violations of Title III of the Americans with Disabilities Act of 1990 (ADA); (ii) any notices of claims made or threatened in writing regarding noncompliance with the ADA; and (iii) any notices of any governmental or regulatory actions or investigations instituted or threatened regarding noncompliance with ADA; as same relate to all or any portion of the Premises and/or [Building/Center].
Practical Pointer: Keep in mind that the tenant may request that this notice requirement be reciprocal, so you must let it know if you get an ADA violation notice. Be cautious about agreeing to this, especially if the lease includes a clause saying that you’ll comply with all laws (as most leases do). Otherwise, if you should get a notice of an ADA violation, the tenant might argue that you’ve violated the lease.
Key Clause #10: Tenant’s Insurance
Suppose your building was built before the ADA went into effect and the tenant’s space is damaged by a fire. If the lease requires you to rebuild the space, you’ll have to do it in compliance with the ADA. This can increase the cost of your work. You’ll want to make sure the tenant’s insurance covers these added costs in the event of casualty or destruction. So make the tenant get an insurance endorsement that covers any added costs needed to rebuild the space in compliance with laws that weren’t in effect when the space was built, such as the ADA. Your property insurance should have this endorsement also. Ask your insurance broker for details.
Key Clause #11: Indemnification
The typical lease has an indemnification clause that says the tenant will indemnify you—that is, reimburse and defend you—for any damages you suffer or claims you face as a result of an incident that’s either its fault or that occurs in its space. Take a look at the indemnification clause and make sure it’s worded so that it covers any ADA violations that are within the tenant’s responsibility.
Key Clause #12: Severability
Most leases contain a “severability clause” that says if any clause in the lease is illegal, that specific clause will be ineffective but the rest of the lease will remain intact. Make sure your lease has such a clause. That way, if a lease clause bars certain changes that become necessary to comply with the ADA, you’ll be able to invalidate the clause and make the required changes.