Leasing Strategies for Utilities, Trash, and Interruptions

November 20, 2014

Utilities, trash, and utility interruptions are three relatively straightforward topics, but they are important to understand because of how integral they are to a smooth business operation.

 

Who Provides?

For the utilities, it is important for the tenant and the landlord to discuss how the utilities are provided.  Each landlord and each building seem to have a different method, so the tenant cannot assume it knows how it will be arranged.  There are a handful of questions to ask:

 

  • Are the leased premises separately metered? 

 

  • Will landlord arrange for the utilities, or does tenant have to do this? 

 

  • Will the utilities be stubbed to the wall of the leased premises, or does tenant have to connect at some other location? 

 

  • Who is responsible for utility maintenance, and at what point in the utility line does it become a landlord responsibility instead of a tenant’s? 

 

If the utilities are not separately metered, then tenant likely will pay them on a proportionate share basis, similar to additional rent. This is a reasonable approach.  However, tenant should confirm that other tenants are not using a disproportionately high amount of electricity or water.  If tenant pays its proportionate share on a square footage basis, tenant then would be paying an unfairly high amount.  If the utilities are metered, tenant should push to have the meters installed at landlord’s cost.

 

Adequate Capacity

Landlord should covenant in the lease that it will provide the utilities to the leased premises in sufficient capacity for tenant to operate its business.  If the type of utility supply is critical to tenant’s business, tenant can have the exact electric, lighting, or water specifications listed in the lease.  Certain manufacturing, technology, or laboratory tenants may require such things.   

 

Who Pays for Trash?

The tenant should always ask how the trash removal is handled.  How often is it picked up?  Is the cost included in the additional rent?  Is it a separate charge?  How and where is trash to be stored prior to being picked up? 

 

Knowing these items will help a tenant plan for a key operational component of its business.

 

Interruptions

The tenant could try to negotiate a rent abatement provision into the lease that would provide tenant with a rent abatement in the event the utilities are interrupted.  For example, if the utility service is interrupted for 48 hours, then rent could automatically abate if landlord does not fix the problem within the 48 hours.  Tenant also could try to negotiate a right to terminate the lease if the utility interruption is not cured within 30 days.  These types of provisions are very helpful to have in the event of an interruption because they usually will motivate a landlord to remedy the problem.

 

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