Do I have to replace my A/C when it breaks down?

You are two years into your five-year lease, and your store’s air conditioner unit blows out. It is no longer repairable and needs to be replaced with a brand-new $8,000 unit. The replaced unit will serve that store for another ten to fifteen years, but you are moving out in three. Shouldn’t your landlord be the one paying for it? Well, what does your lease agreement say?

It may not be always that simple to figure out whether it is the landlord’s or the tenant’s duty to replace broken down systems. Unfortunately, many lease agreements out there are either silent or ambiguous, especially when it comes to HVAC systems. There is also the matter of using the words “maintain,” “repair,” and “replace” inconsistently throughout a lease agreement’s maintenance provisions.

The first step in figuring out who pays is to determine who or what caused the breakdown of your A/C unit. Usually, it would be fairly clear whether tenant misused or damaged it or whether the unit’s useful life expired. For unclear cases, you might need to bring in an HVAC expert to understand the cause. If the tenant is not directly at fault, then the next step is to determine what the lease agreement requires.

At this point, your lease agreement might have a provision to the effect of: “Tenant shall maintain, repair, and replace . . . the HVAC systems servicing the Premises.” Unfortunately, this would resolve the matter and place the burden of replacing the A/C unit on the tenant. There is not much argument against the clearly stated responsibility to “replace” the unit. That is why it is critical to iron out these duties during the lease negotiation stage and why hiring an attorney to review your lease before you sign it might end up saving you thousands of dollars down the line.

Nevertheless, most leases state that the tenant shall “maintain” the HVAC systems (including a requirement for quarterly service) but remain silent on who “repairs” or “replaces” a broken-down A/C unit that would cost thousands of dollars. This is where the parties to the lease might try to push the duty to “replace” on one another.

The usual interpretation when there isn't an express duty on the tenant to "replace" the A/C unit is that the landlord would pay for such costs since it is considered a capital expense. However, depending on how the operating expenses are defined in the lease agreement, the triple-net provisions might lead to the tenant paying for all or a portion of such replacement under its proportionate share of common area maintenance (CAM) or operating expenses.

Another alternative is to provide a cap amount where the tenant would be responsible for any maintenance and repairs under the cap and the landlord would pay for anything above the cap. The lease could also make all HVAC expenses a landlord responsibility and set the rent with this in mind.

All in all, the tenant and the landlord should negotiate a fair way of allocating responsibility for HVAC costs to avoid conflicts and inconsistencies and including a well-written HVAC clause that clearly delineates each party's responsibilities in their lease agreement.