The landlord's lease might include an innocuous-sounding clause entitled "Compliance with Laws." Contrary to what you might think, the inclusion of this clause doesn't mean that you're simply being asked to be a law-abiding businessperson. Hidden within that clause are potential headaches and expenses that could have nothing to do with your business ethics.
Commercial space that's recently constructed, brand new, or about to be completed is hopefully "up to code," meaning that it:
Unfortunately, you shouldn't assume that any property will comply with building codes, ADA access requirements, or environmental standards. No matter the age, prestige, or expense of your rented space, it might not be up to par.
The property could have insufficient sprinklers in the ceilings, bathrooms that aren't wheelchair-accessible, or ancient, crumbling asbestos in ceiling tiles. Perhaps the building was never in compliance and no one noticed, or the laws have become stricter since the property was built and there's no "grandfather" provision exempting existing structures.
The financial consequences of renting commercial space that doesn't measure up to building codes could be significant. For that reason, a sophisticated and powerful landlord might attempt to shift the risk of future compliance problems to you, the tenant.
Here are the approaches that the landlord's lease might take and what's best (and worst) for you, the tenant.
If the landlord's lease doesn't even have a "compliance with laws" clause, you're in pretty good shape. If any compliance orders, settlements, judgments, or cleanup costs involving your property come up, sometimes you and the landlord can resolve who should pay for them. But if you can't, the law (a judge or your arbitrator, if you use a dispute resolution mechanism) will usually allocate them in a generally fair way.
When the landlord pays. Most of the time, if the noncompliance concerns the structure as a whole or is a result of the owner's action (or inaction), the landlord will pay. For example, the landlord is usually responsible for removing building-wide asbestos, and for the cost of replacing the locks with new, more secure hardware mandated by local codes.
When the tenant pays. You'll typically be responsible for noncompliance that results from your use of the property or from your alterations or improvements. For instance, if you open a restaurant, the health codes might require an exhaust fan. The responsibility will fall on you to purchase and install the fan.
Most leases prepared by landlord lawyers include a compliance clause. If you're lucky, the clause will simply repeat the general rules explained under the "no compliance clause" discussion, above, and distribute the financial responsibilities relatively fairly. Many times, however, you'll see a variation on the general rules, with the landlord shifting some or all of what should rightly be the owner's compliance responsibilities to you, the tenant.
Compliance with all laws. The most one-sided compliance clause will make you responsible for "compliance with all laws," period. Unbelievable as it might seem, a judge could interpret such a phrase as meaning that preexisting or building-wide compliance duties are now yours. If so, you might have to pay to replace a leaking roof, widen the lobby doorways, or remove building-wide deteriorating asbestos—even though these noncompliance problems have nothing to do with how you've used your rented space.
List of compliance duties. Sometimes a landlord-friendly clause will take a different approach. Instead of making you responsible for "all compliance," the clause might go into detail concerning your compliance duties, including many jobs that ordinarily would be considered the owner's responsibilities. For example, you could be asked to make sure all sprinkler systems, smoke detector appliances, and fire escape equipment are in place and up to code.
If your landlord's lease includes an onerous compliance clause—one that makes you responsible for all compliance, or includes a lengthy or potentially infinite list of duties—do your best to negotiate more balanced terms. Bargain for a clause that doesn't make you responsible for preexisting noncompliance, and limits your compliance responsibilities to only what you do in your rented space.
A tenant-friendly compliance clause should include the following:
When reviewing whether your lease is compliant with relevant laws and is up to code, you should pay special attention to whether the space complies with ADA standards.
The ADA is a federal civil rights law that protects people with disabilities from discrimination. It's broad and applies to five areas (separated into five titles under the Act):
(42 U.S.C. § § 12101 and following.)
If your business serves the public (for example, you own a retail store) or you have 15 or more employees, your commercial space would fall under the ADA, and you'll need to follow ADA standards. As a business owner, it's important to ensure ADA compliance and limit your liability for any noncompliance. You should negotiate your duties and responsibilities for complying with the ADA under your commercial lease compliance clause.
The ADA protects people with physical and mental disabilities. The ADA defines a "disability" as:
(42 U.S.C. § 12102.)
The U.S. Department of Justice (DOJ), one of the departments that enforce ADA regulations, provides a list of examples of disabilities. The DOJ's inexhaustive list includes:
But short-term disabilities (like a broken arm or leg) and mild conditions (such as a seasonal pollen allergy) wouldn't qualify as ADA-recognized disabilities.
Almost anyone who contributed to your commercial space can be responsible for compliance with the ADA. The following people and companies can be responsible for ADA compliance in your commercial property:
But these ADA responsibilities and liabilities can be shifted from one party to another in a contract.
For example, suppose Lucille Bluth hired Banana Stand Construction to design and build a retail store. In the construction contract, Banana Stand Construction agreed that their work would comply with ADA regulations. Later, Lucille's store was reported for not having a wide enough entryway into her store for a wheelchair to fit, an ADA violation. According to the construction contract, Banana Stand Construction would be liable for the noncompliance because they certified that the building as constructed complied with ADA standards.
Negotiating responsibilities for ADA compliance will work the same way as negotiating the compliance clause in your lease. ADA compliance is just a specific consideration in the compliance clause—although sometimes it's given its own clause.
Here are some specific suggestions for negotiating your responsibility for complying with the ADA:
Even if the landlord agrees to handle the changes needed to make the building accessible to people with disabilities, you're not fully off the hook. The ADA requires you to make the layout and interior design of your business space free of barriers that could limit access to disabled customers and employees.
For example, you must make sure that aisles in your store or office are wide enough for someone using a wheelchair, walker, or electric scooter, and that counters are low enough for use by someone who's disabled. Similarly, tables in eating areas need to be tall enough to accommodate someone using a wheelchair.
(For more information, read the DOJ's guide for small businesses.)
When reviewing your lease, it's a good idea to talk to a contract lawyer with experience drafting commercial leases. An attorney can quickly spot language that favors the landlord and help you negotiate a compliance clause that protects you. A lawyer can also help you identify areas of potential noncompliance (like bathrooms and hallways) that should be reviewed with your landlord before signing the lease.