Who is responsible for installing HVAC - tenant or owner?

Answered by Jeffrey Anderson ~ September 23, 2013 ~ No Comments

When you're leasing a commercial space, is it the responsibility of the tenant or the owner to install the HVAC?


Jeffrey Anderson

Vicki, I don't believe there is a hard and fast rule as it can vary depending on how the lease agreement is written and the type of structure being leased. However, I will say that in my experience the main HVAC system is almost always provided by the building's owner.

This is normally referred to as "vanilla shell" leasing. The owner provides each tenant with the basic HVAC, plumbing, and electric necessities as well as the walls that separate the adjacent spaces. Any improvements beyond those basics are handled in various ways.

If the space has been difficult to lease, the owner may offer to pay the build-out costs as an incentive to prospective tenants. On the other hand, if the space is desirable due to its location or the building's other tenants, the owner may put in the lease agreement that the new tenant is responsible for any build-out costs. I have seen the tenant have to pay those charges upfront, but most of the time they are added to the rental payments and spread out over the duration of the lease.

The ductwork inside the tenant space is normally adjusted to fit the renter's particular layout or at least modified as much as possible without adversely affecting the system's performance. The cost for those improvements or changes is then added in with the other build-out costs and handled however was agreed upon by the building owner and tenant.

I should also add that if any special HVAC system requirements are needed due to the planned usage of the space, they are almost always paid for by the tenant. I have done some build-outs where a supplemental system needed to be installed to condition the space adequately. The bottom line is that what the owner is required to provide the tenant is almost always based on what is written in the signed lease agreement.

I'm guessing that it must be a new building and you are the first tenant for the space if it doesn't already have an HVAC system of some sort. It could be that the owner is new to the commercial leasing field and isn't familiar with "vanilla shells." It generally makes sense that they should be responsible for providing the HVAC system as the heating and cooling units should last much longer than the length of your lease unless you plan on being a very long-term tenant.

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