When landlords and tenants negotiate a commercial lease, the focus is usually on rent, operating costs, taxes, utilities, maintenance, repair, and other similar provisions. This makes sense given that these terms will govern the day-to-day relationship between the landlord and tenant.
Are these basic terms enough? Not really. Usually the parties don’t spend as much time as they should considering how the tenant must return the space after the end of the lease. The roof is a critical part of this negotiation, as it is one of the most essential and valuable areas of industrial and commercial buildings–and restoring it to the proper condition can be costly.
It’s smart for the parties to sign a lease that provides for many possible scenarios for how the roof must be left by the tenant. However, there are often situations the lease doesn’t cover and may be unclear.
What Are Some of the Gray Areas of Commercial Roof Repairs + Restoration?
When the tenant vacates the premises, there is typically a clause requiring that they restore the space to “base building condition”, often with an exclusion allowing for “wear and tear. Sometimes, the lease will require more, such as returning it in “pristine” condition. Other typical provisions will clarify which type of equipment must be removed and disposed of by the tenant.
The overall issue is the agreed to definition of the term base building condition. This is so important because one of the biggest concerns when a tenant moves out is who will incur the cost for specific types of restoration.
Related questions about commercial roof repairs may include:
- Who pays for the removal, lifting by crane, disposal, and make-good costs for equipment or improvements made by the tenant?
- What if the tenant added equipment the lease doesn’t mention?
- What if the tenant moves out before the landlord realizes that dozens of roof top penetrations have been left unrepaired?
- If the tenant installed equipment that the landlord wants removed, will the tenant or landlord pay for it?
- What if the business that is moving in is similar to a business that is moving out and requires similar equipment? Can the equipment be left behind?
- What happens if problems are spotted after the landlord has returned the security deposit and the tenant vacated the premises?
When negotiating a lease, the landlords can’t afford NOT to think about these and other likely questions in advance.
How Can Commercial Landlords Ensure the Provisions for Restoration?
So what’s the solution? How can landlords ensure that the premises aren’t returned with problems that may be the source of future roof leaks? After all, leaky roofs from items such as abandoned roof penetrations can be an enormous cost for commercial buildings.
In the best case scenario, the lease is very specific about what base condition means and the tenant’s obligations for restoration when the lease ends.
A good place to start talking about restoration provisions is to discuss what the tenant (or landlord) might have installed on the roof of the leased space. While the items below are by no means exhaustive, they provide a general idea about how restoration provisions may treat items differently.
Usual expectations for restoration of the roof include (unless otherwise specified):
- HVAC equipment, such as make up air units and exhaust fans
- Paint spray booth exhaust vents
- Telecommunication equipment, including cable trays, cabinets, electrical wiring, antennas, microwave dishes, grounding wires, shelters, elevated platforms, and staircases installed by cellular carriers that rent roof space, plus satellite receivers from internet providers
- Structural items: Roof access hatches, ladders, and roof walkways
- Roof terraces
- Solar PV equipment
- Restaurant Equipment: Ovens, make-up air units, exhaust fans, exhaust for hot water tanks and additional plumbing fixtures, refrigeration equipment, additional HVAC for customer seating areas, and raised façades for signage
Agreement About How Commercial Roof Repairs Will Be Handled
When negotiating a lease or when inspecting the roof before the lease is signed and in preparation for the tenant’s move-out, the parties should be certain to have a mutual understanding of areas for which the tenant is usually responsible, including:
Removal and Disposal
If the equipment is specific to the tenant, the tenant would usually disconnect it, lift it off the roof, then remove and dispose of it. The tenant would also remove all electrical wiring, gas piping, and plumbing connections.
Roof Penetrations and Deck Substrate
A roofing contractor would remove all redundant roof penetrations and repair the deck substrate. When needed, the tenant would need to install missing structural reinforcing around any penetrations greater than 12-inches or closer than 4- feet together (subject to the opinion of a structural engineer).
Roof Insulation and Membrane
Tenants would reinstate the roof assembly at the location of the penetration(s), including installing insulation to match the existing stock and thickness and making good on the roof membrane. Tenants should make their best efforts to use the same or similar materials as the original installation wherever possible and practicable.
Further Definition of Base Building Condition
The lease should articulate which items are not in working conditions when the lease is signed if the tenant is required to return these items in working condition.
These phrases include:
The lease should articulate which items are not in working condition when the lease is signed if the tenant is required to return these items in working condition
If a roof was initially in good condition, the tenant must return it in good condition. Unless otherwise specified, tenants do not need to return the roof in better shape than when the lease began.
Reasonable Commercial Roof Repair, Wear and Tear
Typically, tenants must properly maintain the roof, keeping it in good condition and repair, subject to “reasonable wear and tear.” In general, this means what happens to the roof over the term of the lease. Wear and tear can vary based on circumstances, including the building’s age, design, the expected use of the space, the effects of natural forces, and the passage of time.
What does this mean? One example is that, an industrial-use building with a large amount of rooftop HVAC equipment would likely have significantly more wear and tear than a comparable industrial building roof with little or no rooftop equipment. For an office building, a pile carpet flattened by foot traffic would be reasonable wear and tear, whereas large holes in the carpet would not.
Here are more important points about commercial roof wear and tear:
- The definition depends on the roof’s condition when the lease begins.
- Inspections are important to verify the condition at the lease start and end dates.
- Third-parties, such as roofers, HVAC contractors or consulting engineers, can be consulted for expert opinions.
- Full documentation–such as photos, videos, or reports–should be provided.
- The tenant ought to be able to prove that any deterioration resulted from reasonable wear and tear and not from failing to maintain it, even if the condition was initially first-class or pristine.
Finally, it can’t be stressed enough that prudent tenants should ensure that the lease includes this last exclusion
First-Class Commercial Roof Repair and Condition
Occasionally, a lease will require a tenant to surrender the premises in “First-Class (or Pristine) Condition and Repair.” In this situation, the landlord must receive the leased space, including the roof, in new or like-new condition–which may be better than the initial condition.
Going back to the previous example, “Pristine” condition would require the tenant to repair any damages in the roof membrane and likely replace areas showing significant wear—but probably would not require replacement of the entire roof (unless otherwise specified), particularly if the entire space did not originally have a new roof.
No matter the restoration condition specified, the lease should include how the restoration work on the roof will be paid for.
Save Aggravation with a Clear Lease
Restoration provisions can be a ticking time bomb with a very long fuse. Whether you are the landlord or tenant, ignore them at your peril. Your lease should be clear about the roof condition at the start of the lease, the expected condition at the end of the lease, and who will be responsible for items that are–or are not–specified in the lease. A well-negotiated lease will ease the move-out process, prevent future leaks caused by move-out conditions, and enable the landlord to avoid future costs for roof repair or other construction work.
When getting your roof in proper condition at any point in the lease cycle, business owners in Toronto should call Elite Roofing, a family owned and trusted for over 65 years. Contact us today.