New York City Owner Gets Left in the Dark
If you're like many owners, you're probably trying to control the amount of electricity consumed at your building or center. This way, you can keep down electricity costs that are passed through to tenants, prevent a strain on your building's or center's electrical infrastructure, and avoid having to add new risers or bring in additional electrical service from outside your building or center.
But if your lease is like many we've seen, it may have a loophole that could undermine your ability to effectively control power consumption. The loophole: 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 electrical system and/or causes your building's electricity costs to skyrocket. And even if a tenant seems unlikely to ever consume too much electricity, it could someday assign or sublet to an electricity hog.
And the loophole is a problem even if your tenant pays for its own electricity. You don't want it using so much of the building's or center's electrical capacity that you'll have problems negotiating with a potential tenant that also needs additional electrical capacity, cautions New York City attorney Jeffrey A. Moerdler.
Moerdler has seen owners get left in the dark—literally—after tenants significantly and unexpectedly increased their electricity consumption. For example, one of his owner-clients experienced a big problem after a tenant assigned its retail lease. The assignee installed many new lighted display cases, new halogen lighting, a new computer network, and new air-conditioning units. As a result, the assignee's electrical equipment blew out the power in the building.
Add Three Protections to Your Lease
To plug this loophole, make sure you add these three protections to your lease, says Moerdler.
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, says Moerdler. Then, if you're worried that the proposed equipment or appliances will consume too much electricity, you can refuse to give the tenant your consent to their installation, he explains.
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.
Practical Pointer: 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, says Moerdler. Also expect it to demand that you agree not to unreasonably withhold your consent, he says.
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].
You can install new risers. The tenant's electrical needs may be greater than the building's or center'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, suggests Moerdler. You can then ensure that the installation is done properly, he explains.
Require the tenant to pay the installation costs, although you do the work, Moerdler advises. Categorize this payment as “additional rent” that's due soon—say, 10 days—after the tenant gets your bill, he recommends. If the tenant fails to pay your bill for additional rent, you can treat that failure as a nonpayment of rent, triggering your lease remedies, he explains.
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 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.
CLLI Source
Jeffrey A. Moerdler, Esq.: Partner, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 666 Third Ave., New York, NY 10017; (212) 692-6700; jamoerdler@mintz.com.