Building Better Leases Series – Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations

Building Better Leases

Lessee’s Obligations:

In General

The Lessee is responsible for keepings the Premises in good order and repair. This includes Utility Installations such as plumbing, HVAC and other building systems. While occupying the space, the Lessee must repair any items that require maintenance, including those from former tenants or those that have gone bad simply from old age. It is also the Lessee’s responsibility to replace any items that are damaged when necessary.

Before signing the lease, the Lessee should conduct a thorough inspection of the building. If the building is old or not maintained well, they may discuss with the Landlord adjustments to this section.

Service contracts

When a contractor agrees to perform a service in exchange for compensation, a service contract defines the terms of that agreement. The Lessee is obligated to obtain and maintain contracts of maintenance of the fire safety systems, landscaping and irrigation systems, roof covering and drains, HVAC, boils, and pressure vessels. Alternatively, the Lessor receives the right to obtain these contracts and bill the Lessee for the costs. Many times, Lessor’s will obtain these contracts and bill their tenants for the services to ensure that the buildings systems are maintenance by contractors they know and trust.

Failure to Perform

The Lessor has the right to perform the Lessee’s maintenance obligations and charge the Lessee 115% of the cost if the Lessee fails to maintain the Premises. Since the Lessor is completing the tasks the Lessee should be performing, the additional 15% is used to cover the Lessor’s time and management of the process.


The Lessor is responsible for replacing items if they cannot be repaired for under 50% of its replacement cost. The cost of replacing an item is prorated between the Lessee and the Lessor. The Lessee shall, each month for the remainder of the Term or until the Lessor has been reimbursed for the full replacement cost, pay the Lessor a sum equal to 144th of the replacement cost together with Interest on the unpaid balance.

For example: if the cost of replacing the HVAC unit is $5,000.00 and there are 24 months left in the term, then the Lessee would owe the Lessor a total of $833.28, (plus Interest). Ie. $5000/144=$34.72. $34.73 x 24 = $833.28. The Lessee may pay its entire share up front in order to avoid interest


The formula used is based on a 12 year amortization. That being said, a different amortization period could possible be negotiated

Lessor’s Obligations:

The Lessor is not obligated to repair or maintain the Premises, rather it is the Lessee’s responsibility. It can be very expensive to maintain the Premises, so it’s important that the Lessee is aware of the financial repercussions.