Beware – Change of Tenant Can Trigger Fire Code Improvements
By Real Estate and Land Use Practice Group
Saalfeld Griggs PC
In the past few years we have seen a dramatic increase in the number of fire code issues arising from changes in occupancy. This enforcement trend must be taken into account by all landlords when new leases or assignments of leases are being considered.
It has long been the case that a new category of users not only triggers expensive tenant improvements (TI’s), but can also result in a new fire code classification for the building or a portion thereof. With the latter can come costly fire protection improvements. So, for example, if your flex space tenant changes from a cell phone sales office/warehouse to a high stack greeting card/gift paper supplier, you are probably already aware that the change in tenancy could change the public safety requirements for the building based upon the increased fire risk. Some newer buildings were designed to cover multiple fire code classifications of users. However, many were not. In addition, most older buildings may have serious issues in this regard.
Don’t be fooled into thinking you do not have a problem and that your building is “grandfathered.” The fire code requires compliance with current regulations when the occupancy changes and the fire risk is increased. Goodbye grandfather, welcome grim reaper.
Sometimes this problem will surface in the building plans review stage. But, that is too late in most lease situations. By then, the lease has been signed and the plans for the TI’s have already been drawn. In other cases (probably the majority of non-office leases in this area), there are not extensive TI’s and, therefore, no building permits are necessary when the occupancy changes. In those cases, the change in occupant classification under the fire code problem may not be discovered until the time of the first inspection by the fire department, or even years later!
The change in fire code classification can seriously affect the parties cost allegations and rent analysis. In a couple of recent cases, the public safety improvements required when a new tenant came on board, or when the lease was assigned from the existing tenant to an assignee, were in the $50,000 range each. Ouch! And, you cannot count on the “boiler plate” of some old form to save you. For example, most forms say that the tenant has the obligation of “compliance with all laws,” and the form will later go on to say that “the landlord represents that the building complies with all applicable codes.” You can see the problem. Since you can expect a friendly inspection every few years, don’t think that your new tenant will go unnoticed. This will be especially true if the city imposes a business license tax. In that case there will even be more inspectors patrolling the streets.
The best way to deal with this problem is up front before the lease or assignment is finalized. Careful lease drafting can help you deal with these matters before the problem arises. Any major change in occupancy should also be run by your architect, engineer or contractor for code compliance, as well. By taking a little time up front, you can save yourself tens of thousands of dollars of problems later.