If a new building department regulation goes into effect subsequent to the signing of a lease, either the tenant or the landlord has to comply with that regulation. In most cases, the landlord stipulates that the tenant is fully responsible for complying with all laws and regulations. However, it is usually possible to prevent the tenant from being fully responsible for capital improvements. An excellent example of this is retrofitting a space for a sprinkler-based fire prevention system.
As of July 2019, most buildings in New York City are mandated to have a sprinkler system to combat fires. When negotiating a lease together with the attorney, we craft clauses that fairly distribute the cost of making such improvements. For instance, landlords across the city are making every effort to shift the cost of the sprinkler system onto the tenant. Going into a lease negotiation, we advocate that the sprinkler system is a capital improvement to the building and the tenant should not have any responsibility for its cost. The fallback position is for the tenant to pay only the amortized cost of the sprinkler system over the life of the lease. So if a sprinkler system is amortized for tax purposes over a 39-year basis, and the tenant has space for 10 years, the tenant pays 10/39th of the cost of that system.
Note: While the sprinkler law is not very popular with tenants, there is a silver lining: having a sprinkler system reduces insurance premiums—in addition to being an added safety feature.
With the sprinkler law in mind, prospective tenants would be wise to assemble a team to negotiate the responsibility for tenant and building improvements. Team members should include:
- an architect,
- a project manager,
- an attorney, and
- a tenant representative broker.
The tenant is always better served by having a full array of professionals. However, assembling a team with all of these people is only the first step. It is imperative that the team meet and speak periodically.
In the 30 years, I have served as a tenant representative broker, I have found that tenants invariably get the best deal if they engage a potential landlord armed with a team to look out for their interests—especially those tenants who make use of their team’s expertise.
How are you planning to comply with New York’s Sprinkler Law?
George E. Grace
Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016