Add Three Protections to Lease with High Electricity Consumption Tenant

Tenants who have a high electricity consumption can pose problems that you might not have considered when negotiating your leases. And a tenant that uses a typical amount of electricity now could need more later, or sublet or assign its lease to a high-power tenant. So, the message should be in neon lights for you: It’s crucial to negotiate and draft your lease provisions to protect against a tenant’s high power consumption.

Tenants who have a high electricity consumption can pose problems that you might not have considered when negotiating your leases. And a tenant that uses a typical amount of electricity now could need more later, or sublet or assign its lease to a high-power tenant. So, the message should be in neon lights for you: It’s crucial to negotiate and draft your lease provisions to protect against a tenant’s high power consumption. Here are the safeguards you’ll need to use, especially with a savvy tenant that knows its electricity needs are above the norm and is prepared to push back.

Prepare for Power Needs

Controlling the amount of electricity consumed at your building or center helps you keep down electricity costs that are passed through to tenants, prevents a strain on your building’s electrical infrastructure, and avoids having to add new risers or bring in additional electrical service from outside your property.

If your lease with a tenant doesn’t give you that control, it could undermine your attempts to effectively curb power usage. The loophole would be that the lease doesn’t require the tenant (or its assignee or subtenant) to get your consent before it significantly increases its electrical consumption. So you might find out after the fact that a tenant’s renovation uses so much electricity that it blows out your building’s or center’s electrical system or causes your building’s electricity costs to skyrocket.

Beware of Changing Requirements

Another factor to take into account is the assignment or subletting by one tenant to another that uses much more electricity. For example, a retail tenant could assign its lease to a jewelry store that uses lighted display cases and halogen lighting, or an office building tenant could assign its space to a data center tenant that uses much more computer equipment than is average. Those types of equipment use so much power that it could affect your negotiations with an unrelated prospective tenant that also needs additional electrical capacity.

How to Plug Loophole

There are three protections you can add to your lease that will cover your bases in case extra electricity is needed by the current or a future tenant.

Protection #1: Tenant must get your consent. Say in the lease that the tenant can’t change or install any electrical equipment or appliances at its space without your prior written consent. Then, if you’re worried that the proposed equipment of appliances will consume too much electricity, you can refuse to give the tenant your consent to their installation.

Model Lease Language

Tenant shall make no electrical installations, alterations, additions, or changes to electrical equipment or appliances without the prior written consent of Landlord in each instance.

However, expect a savvy tenant to demand that your prior written consent be required only if the electrical installations, alterations, additions, or changes will significantly increase the amount of electricity it uses. Also expect it to demand that you agree not to unreasonably withhold your consent.

Protection #2: Tenant must comply with utility company. Require the tenant to comply with the rules, regulations, terms, policies, and conditions issued by your building’s or center’s utility company. You don’t want the tenant’s electrical equipment or appliance changes or installations to create problems with your building’s or center’s utility company.

Model Lease Language

Tenant shall at all times comply with the rules, regulations, terms, policies, and conditions applicable to the service, equipment, wiring, and requirements of the utility supplying electricity to the [Building/Center].

Protection #3: Owner can install new risers. The tenant’s electrical needs may be greater than the building’s current infrastructure can handle. So you may decide to add new risers, feeders, circuit breaker panels, switch gear, or other equipment to handle the tenant’s needs. Or the tenant may request the installation of additional electrical equipment at the building or center. If you want—or agree to—the new equipment, install it yourself. That way, you can ensure the installation is done properly.

And require the tenant to pay the installation costs, although you do the work. Categorize this payment as “additional rent” that’s due soon after—say, 10 days—the tenant gets your bill. If the tenant fails to pay your bill for additional rent, you can treat that failure as a nonpayment of rent, which will trigger your lease remedies.

Model Lease Language

If, in Landlord’s sole judgment, Landlord determines that Tenant’s electrical requirements necessitate installation of additional risers, feeders, circuit breaker panels, switch gear, or other electrical equipment, or if Tenant proposes the installation of additional risers, feeders, circuit breaker panels, switch gear, or other electrical equipment as part of an Alteration or otherwise, and if Landlord has approved such installation, then in either such event, the same shall be installed by Landlord at Tenant’s sole expense, which shall be Additional Rent and shall be paid within [insert #, e.g., 10] days of Tenant’s receipt of Landlord’s invoice therefor.