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  • Kevin Cleveland

A Physical Approach to Leasing

For someone excited about opening a new business, he or she may want to stop and consider the hidden costs of leasing that do not appear in the rent section of the lease. Assume that Tammy has just signed a lease to open a fitness center in a converted warehouse.  The lease notes that she is taking the space in an “as-is” condition, and she is responsible for all tenant improvements that must be completed.

Tammy did not want to hire a contractor or architect yet to help her examine the space so she has no idea what the city or county might require before it will issue a building permit, and she failed to contemplate that some of her customers might be handicapped.

Since this space is in a converted warehouse, it probably lacks an adequate number of parking spaces, and it probably has no handicapped parking space. Before Tammy opens her doors, she must modify the parking lot to provide a few handicapped spaces and a safe path of travel to the front door. Depending on the topography, she may also have to build a ramp that complies with the Americans with Disabilities Act (“ADA”). And while Tammy is at work, she may have to widen the doorway to accommodate a wheelchair.

Tammy’s proposed use might be deemed one that entails an assembly of people, and the local jurisdiction might want a sprinkler system installed for the whole building. If the space happens to be on the second floor, then other life safety issues may arise. Poor Tammy did not think to call me so that I could tell her about a cemetery that had to install sprinklers in the mausoleum.

As a converted warehouse, the building may still contain some asbestos containing materials, and some seismic reinforcement may be necessary for the walls.  If the fitness center is on the second floor, Tammy may need to examine whether the floor was designed for the weight of her exercise machines.

Of course, there are always plumbing issues with any old building, but Tammy did not contemplate building ADA-compliant bathrooms and showers.  Moreover, the water service to the building may not be sufficient to serve the fire sprinkler system.

Finally, after flipping through the standard form lease that Tammy signed, she realizes that she is responsible, either directly or indirectly, for the maintenance and repair of the roof, parking lot and HVAC unit serving her space. Before signing the lease, she did not think to inspect these aspects of the building with a qualified professional.

Unfortunately, Tammy did not set aside enough money to cover the needed work, and she has no ability to terminate the lease due to the excessive and unplanned costs. While Tammy may have negotiated the legal issues that came to mind when she reviewed the lease, she did not consider the physical issues related to the space, the building and the parking lot. Tammy should have had a contractor and/or architect tour the building before she submitted a letter of intent and even before visiting with an attorney to discuss the lease.

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