If you’re new to after-hours HVAC billing, you may find it hard getting started drafting a lease or tenancy notice. After-hours HVAC is a complex topic, and each property requires a bespoke solution. However, there are a few basic terms and ideas that appear in most agreements regardless of your circumstance or location. This guide walks through what to include, and gives you sample clause language you can adapt. While you should always consult a legal professional when drafting leases, the following tips, topics and templates will help get the ball rolling. (For the bigger picture, see our guide to what after-hours HVAC is.)
Define “After-Hours HVAC”
Ensure you have a clear and unambiguous definition of after-hours HVAC to start with. Use a term that’s common for your area. In some markets, after-hours HVAC is referred to as “overtime HVAC.” Other times a lease may only refer to “after-hours air conditioning,” “after-hours air con” or AHAC for short. With a little research, you can locate the preferred name for your situation (our breakdown of overtime, on-demand and after-hours HVAC can help). But regardless of the moniker used, be consistent to avoid confusing your tenants.
Next, your definition needs to set parameters for when AHAC applies. In most situations, it refers to charges incurred by any tenant who operates the air conditioning system outside of normal operating hours. Therefore, your definition must necessarily include an explanation of “normal” operating hours.
List Normal Hours of Operation
Operating hours for a property are usually stated within the lease, but it’s a good practice to remind tenants in all your communications. Use a simple table like the following that clearly lists times and days for each floor, tenant and/or zone of the property.
| Level 2 | 8:00 am to 6:00 pm | Mon-Fri | 8:00 am to 1:00 pm | Saturday |
| Level 1 | 8:00 am to 6:00 pm | Mon-Fri | 8:00 am to 1:00 pm | Saturday |
| Ground | 9:00 am to 5:00 pm | Mon-Fri | 9:00 am to 12:00 pm | Saturday |
By definition, any HVAC usage outside of normal operating hours is considered AHAC and will be charged as such to the requesting tenant. In contrast, you could list a table showing only times that fall inside the AHAC time slots, if this makes it easier to understand.
Remember to mention any specific days outside the scope of operating hours such as holidays. And if you don’t plan to make AHAC available to all parts of your property, then list those excluded areas in your lease and/or communications with tenants.
Explain Fixed Rate Calculation
Explain how you calculated the energy costs (i.e., fixed energy rate) that factored into your after-hours HVAC fee. If it was based on an average energy cost across the entire property for a specific time, then show how you prorated the amount. Maybe your energy provider calculated the hourly cost for you. If so, briefly explain how this process works. If you estimated the hourly energy based on the equipment involved, then list these HVAC assets for the tenant. Such assets might include chillers, AHUs, VAVs and FCUs. (For a step-by-step method, see our guide to calculating an after-hours AC rate, and for typical figures, our cost benchmarks.)
Yes, your tenants are likely to have little interest in how air handling units work. But they will appreciate that you’ve done your due diligence in calculating the actual energy expenses for which you’re charging them. Such reassurance is beneficial when billing issues surface.
Add Excluded Costs
You may also want to list any excluded HVAC equipment or service costs. These can include anything within your fixed energy rate calculation that you’ve chosen not to include even though it’s an actual operating expense. For example, your chiller uses water for heat rejection, but it may be impractical or impossible to get an accurate measurement. Therefore, you may end up omitting water usage from the fixed rate calculation. Other omitted costs often include electricity for lighting hallways, car parks and powering elevators.
An excluded equipment and services list may seem like overkill, but it does show tenants you’ve chosen to absorb some of the costs. This can help quell future complaints about AHAC increases.
Show Tenants How to Calculate AHAC Charges
Finally, write out the actual formula for calculating the AHAC monthly charge. Examples clear up the process for your tenants. At minimum, your AHAC charge will include the following elements:
- Fixed Rate x Number of Operating Hours = AHAC Charges
At this point in the lease, record the amount of the AHAC hourly charge (e.g., “$75 per hour”). Examples here are helpful too: “Tenant A used 10 hours of after-hours HVAC for the month, their total charge would be $75 x 10 = $750.”
Accelerated Depreciation
Including wear-and-tear of your HVAC equipment helps offset replacement costs for their shortened life cycle. If you include accelerated depreciation in your fixed energy rate or AHAC charges, add it to those sections as a line item or as part of the AHAC formula. There are many ways to recoup depreciation losses. Some property owners make depreciation a separate charge, adding the fees to a general “building fund” that goes to maintain the property as a whole. Whatever method you choose, justify your decision by pointing out that after-hours HVAC operation shortens the life-span of your equipment. You’ll need those funds for PPM and to ensure a comfortable building environment for tenants.
Fixed Rate Adjustments
Electricity costs fluctuate, and so will your fixed energy rates. To stay profitable, many firms add a 12-month fixed rate agreement to their lease. The agreement stipulates that when the year ends, the fixed rate will be reviewed and adjusted according to current market rates. Including a section in your lease that explains your rate review strategy helps tenants avoid sticker shock. Email reminders at the beginning of the year also prepare tenants for rate increases.
AHAC vs Annual Operating Expenses
Keep after-hours HVAC charges separate from your annual operating expenses. There’s the potential that AHAC kWhs are accidentally mixed with your normal end-of-year utilities bill to tenants. If this is the case, you will end up charging tenants twice for the same energy usage. (How you structure this is part of choosing a billing method.)
Savvy tenants will anticipate this possibility of energy “double-dipping” and want reassurance from you. Prepare for these concerns by explaining that you’ve taken measures to ensure accuracy and fairness in your billing. It’s the most effective way to avoid confusion down the road.
Sample After-Hours HVAC Lease Clauses
The clauses below are starting points you can adapt to your property and jurisdiction. They are written in plain terms with bracketed placeholders for you to complete. They are not legal advice, and you should have your lawyer review and tailor any clause before it goes into a binding lease.
Definition clause. “After-Hours HVAC” (also referred to as overtime HVAC or after-hours air conditioning) means the supply of heating, ventilation and air conditioning to the Premises at any time outside the Normal Business Hours. “Normal Business Hours” means [8:00 a.m. to 6:00 p.m.] Monday to Friday and [8:00 a.m. to 1:00 p.m.] Saturday, excluding the public holidays listed in Schedule [X].
Service and charge clause. On the Tenant’s request, the Landlord will supply After-Hours HVAC to the Premises. The Tenant will pay the Landlord for that service at the rate of [$ per hour] per [zone / floor], subject to a minimum charge of [one / two] hour(s) per request. This rate represents the Landlord’s reasonable estimate of the actual cost of supplying the service, including electricity, equipment wear and an administration allowance of [X%].
Annual rate review clause. The After-Hours HVAC rate will be reviewed [annually] and may be adjusted by the Landlord to reflect changes in energy costs and in the actual cost of supplying the service. The Landlord will give the Tenant not less than [30] days’ written notice of any change to the rate.
Separate billing clause. After-Hours HVAC charges will be billed to the Tenant separately from, and will not be included in, the Tenant’s share of Operating Expenses. Energy consumed in supplying After-Hours HVAC will not be recovered from the Tenant more than once.
Request and notice clause. The Tenant will request After-Hours HVAC through [the Landlord’s nominated booking system / written notice to the building manager], specifying the date, start time and duration required. [Where requests are made through the nominated booking system, no advance notice is required.] [Otherwise, the Tenant will give not less than [24] hours’ notice.]
Submetered billing clause (alternative to an hourly rate). As an alternative to the hourly rate, the Landlord may charge After-Hours HVAC based on the actual electricity consumed by the Premises during the requested period, as recorded by a submeter, plus a pro-rata allowance for maintenance, depreciation and administration.
Green-lease pass-through clause (variant). HVAC supplied to the Premises outside Normal Business Hours at the Tenant’s request will be charged to the Tenant at the prevailing rate for the service plus the Landlord’s administration fee of [15%]. The Landlord and Tenant will share consumption data as reasonably required for energy benchmarking and reporting. (See after-hours HVAC in green leases for how this fits a wider sustainability strategy.)
Shared-zone proration clause. Where the Premises shares an HVAC zone or plant with one or more other tenants, After-Hours HVAC charges for that zone will be apportioned among the requesting tenants in proportion to [their respective floor areas / their actual usage], so that no tenant is charged the full rate for shared output.
Conclusion
It’s clear there are many factors to consider when building an after-hours HVAC lease agreement. In the end, you can make a lease as simple or complex as you like. Your approach will ultimately be guided by how much time you want to spend versus how much energy cost you want to recoup. The more accurate your fixed rate calculation, the more research it will require. For some, the time spent figuring excluded costs may not offset the benefits of avoiding tenant complaints. But most managers will adopt an approach that prioritizes tenant satisfaction. Eating a bit of operating expense is a small price to pay for full occupancy and happy tenants.