Signing a New Lease? Inspect This System First

As you likely know by now, searching for and securing new office space requires a detective’s eye for detail. What amenities are included under the terms of the lease? How much is the tenant improvement allowance and what are the limitations? Did the landlord include “small print” that could lock us into costly fees or otherwise hamstring us in some way?

While these are all vital questions to ask during the search and negotiation process, there’s a crucial question you may not be considering at all: How’s the heating, ventilation, and air conditioning system – commonly known as HVAC – working?

Most leases state that once the tenant occupies a space, costs to repair the HVAC equipment located within their space is borne by the tenant. Inheriting an old or faulty HVAC system could cost you dearly a few months or years down the road, and chances are many of you are thinking about this for the first time.

That’s why, for many companies engaged in a real estate transition, using a real estate firm like Cresa, can be an indispensable resource. We’re happy to provide an extensive consultation or representation, but for now, here are four questions you should ask your potential landlord regarding a building’s HVAC system:

1. What type of system is it?

There are HVAC systems aplenty. We frequently see three main categories in commercial settings: variable air volume boxes (VAVs), systems that can zone heating and cooling to large areas; fan coil units (FCUs), which use a coil and a fan to heat or cool a room without connecting to ductwork; and heat pumps (HP), which use electricity to move heat from a cool space to a warm space, making the cool space cooler and the warm space warmer.

2. How is the system controlled?

HVAC is typically controlled one of two ways: through a building management system (BMS), allowing the facilities department to monitor and control equipment remotely; or locally, in which zones are controlled by the user at wall-mounted thermostats. If a landlord requires tenant space to be on a BMS, who will pay for the connection to this system? Connecting to the BMS system mostly benefits the landlord, and arguably they should be responsible for those costs.

3. How old is the equipment, and how long will it last?

If equipment is aging, a tenant can often request additional tenant improvement (TIA) dollars to fund new equipment, or ask the landlord to replace the system independently prior to occupancy. A landlord may also agree to conduct any repairs to HVAC equipment for a specified number of years during the lease period.

4. When was the last balancing report?

Testing and balancing ensures that an HVAC system is delivering the desired air quantities to each outlet, and helps determine the total quantity of air a system can handle. Commissioning a balancing report prior to occupying a space will provide the tenant with information on determining the condition of each unit and presence of any pre-existing issues. If there are issues with the HVAC, the tenant can request that those items be repaired prior to occupancy or request funds to do so. Furthermore, if the tenant plans on changing the layout of the space, a pre-balancing report helps the engineer understand how they need to redistribute air throughout the space based on the existing conditions of the system.

Be sure you add these questions about the building’s HVAC system to your checklist as you negotiate a new lease. Failing to understand HVAC and its condition prior to signing a new lease could lead to hefty repairs costs down the road — especially on leases that extend seven or more years. As always, feel free to reach out to Cresa with questions about leases, HVAC, or anything else relating to your real estate needs.