AC and the lease.

Our lease is up for renewal and the landlord just sent us a proposal to basically extend the current lease with a modest increase in rent. Our last renewal we were able to keep the rent the same because we were down in sales a bit, I am not happy with, but expect to pay this increase. My question to all of you that rent is what is expected of you as far as maintaining the air conditioning system?

Our lease requires us to take care of routine maintenance and repairs which I guess is pretty standard, but we are also responsible for replacement. These units are close to twenty years old and need frequent repairs. My ac guy told me last summer that one of the units wasn’t worth fixing. He got it running for us but said to start budgeting to replace it.

Is it standard for the tenant to pay replacement costs for ac units? It seems unreasonably to rent me a price of equipment for 15 years and when it reaches the end of it’s useful life expect me to buy a replacement so I pay rent on that too.

The landlord will, of course, try to extend your lease under the same terms that require you to pay for whatever will be needed to keep the place as cool as you want it. But the renewal period is going to be your only shot at avoiding a big replacement cost issue. If it helps, your landlord is permitted under tax law to depreciate (claim as an expense on his income tax return … he doesn’t lay out any cash, but still gets a deduction) his capital equipment over a number of years … with the reasoning being that the expected cost of replacing equipment is offset by that depreciation expense. So you might want to consider using that argument to either get a rent reduction, or maybe get a concession from them that they will share the cost of replacements. The tough part of that would be how it would be determined that the equipment needed to be replaced instead of repaired. Good luck.

I would ask the landlord to kick in some money for a new ac. He will have to put in a new one for the next tenant if you leave so why not. Ask him if you could a couple months free rent and apply it to the ac.

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As both a commercial landlord and a pizza shop owner I’ve seen this from both sides. Before buying my building I had a triple net lease that made me responsible for everything but the walls and roof. I replaced the A/C at the beginning of my lease and added a new second one a few years in. I wasn’t real happy to do it but it was spelled out pretty clearly in the lease that I signed. As a landlord, I’ve been receptive to upgrading A/C to get a good tenant in but not so much with a tenant who’s already in place. Again, it’s spelled out pretty clearly in the lease. I guess if I had a phenomenal tenant that I was actually worried that they would leave over it I would consider helping with the expense but in general, I’m going to expect the tenant to deal with it. With that said, keep in mind there are massive cost differences between HVAC companies, even for the same system. I’ve had price quotes where one is charging 80% more for the same system than another company. Shop it around and save yourself thousands.

There is no “standard”. It all comes down to what you agreed to when you signed the lease. With that said, it is more common to put maintenance and repair on the tenant but not replacement. One result of this is that LL’s want tenants to repair and repair and repair when a replacement makes more sense. My guess is that you had no professional advice when you did the original lease?

The good news is that Piedad is correct. You have a chance to bring this into the discussion of the lease renewal. I have done leases where everything related to the HVAC was the LL’s responsibility. I have never been party to one that puts replacement of any element of the property such as HVAC, roof, plumbing/electrical systems outside the leased premesis was the tenant’s responsibility, but then this is what I did for a living for a national retailer.

Are you willing to walk or at least play some high stakes chicken? How much time do you have left on the lease? Time enough to credibly threaten to look for another location?

I had no foresight on this at all, we just spent about $25k on a remodel so I would be holding a weak hand in that bluff. We have been a decent tenant for 15 years but if i were in his shoes that would not be enough to make me pick up that liability. We are basically coasting the next 5 or 6 years to retirement unless things go really bad in the next few years. It just kind of sticks in my craw that there is a good chance i will have to buy one or two units shortly before we do which will benefit him and the next tenant more than me.

Bodegahwy is correct that we had no professional advice when getting into this thing, we were just chasing a dream of owning our own business and never had a clue about how much we didn’t know. It is amazing that aftet 15 years there is still so much we don’t lnow but at least now I am aware that I don’t know.

there is a good chance that the old unit will have to be replaced anyways since they have outlawed some of the gases used…I am by no way a HVAC guy, but my guy gave me a heads up that is my situation and my units have air handlers which will be a HUGE expense in addition to the compressors outside. Talk to your local contractors and maybe you can use this as a bargaining chip…good luck but the others are correct that you will be playing poker so good luck with this hand

One more thought. When discussing your renewal, how about adding a paragraph saying that IF the A/C must be replaced, and you accept the cost of that replacement, your monthly rent would be reduced by X (I don’t know, $300/mo, $500/mo, $1,000/mo) until the your cost can be recovered … if this doesn’t work, maybe make it until 50% of your costs have been recovered. This resolution saves your landlord the cash outlay, while offering you some relief for “improving” HIS building. Just thinking out loud here.

Another angle for thought… In some jurisdictions a premises for this kind of use requires air conditioning… the result is that if there is no AC the LL does not have a property that can legally be leased for this use… which in the end means he has to put it in anyway if you leave. It comes back to playing chicken I guess but if the unit is working right now you could propose a choice of a one or two year lease giving you time to seek a new location OR a longer lease if he will get reasonable on the AC issue. Remember there is no such thing as a “standard lease”. That cuts both ways and there a lot of money buckets in a lease. Piedad’s suggestion is a good one. Another way to get a LL contribution would be to have no rent increases for several years. Still another would be to get a tenant improvement allowance which could be used for other things…

When a LL has a vacancy they have several costs: 1. Vacancy with no rent until a new tenant is found. 2. Tenant improvement costs a new tenant will ask for. 3. Rent holiday for some period a new tenant will seek during remodel. 4. Leasing costs including legal review and potentially commission payments. In other words it is a LOT cheaper for a LL to keep a good tenant.