Paragraph 7.1(d) of the AIR CRE standard net lease turns on a ratio. If a piece of HVAC equipment “cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item,” the landlord replaces it, and the tenant pays back 1/144th of the replacement cost every month until the term runs out. Below that line, the tenant pays the repair and the landlord pays nothing.[1]
Put numbers in it. Ten-ton packaged rooftop unit, installed replacement quoted at $25,000, thirty months left on the lease. A repair estimate of $12,400 is 49.6 percent of replacement, and the tenant writes a check for $12,400. An estimate of $12,600 is 50.4 percent, the landlord buys the new unit, and the tenant owes thirty payments of $173.61, which is $5,208 plus interest on the unamortized balance. Two hundred dollars of difference in the estimate moves roughly $7,200 of cost across the table.
The tenant is the party who commissions that estimate, because paragraph 7.1(b) makes the tenant carry the HVAC service contract. The landlord is the party who pays if it comes in high. Nobody has to quote the replacement number until the ratio is already in dispute, and the largest variable inside the repair estimate is a refrigerant under a shrinking federal production cap with no published price.
Without the word “replace,” a repair clause does not buy anything new. The Printer, Inc. v. Benskin Bros., Inc. was a fifteen-year lease on a Des Moines printing plant that needed twenty-seven HVAC units to hold ink temperature. Rent was $360,000 a year. Replacing the HVAC was estimated at $358,900. Paragraph 6(a) of the lease said the tenant “shall keep the premises in good repair” and return them “in good condition, ordinary wear and tear excepted,” and the district court read that as a duty to maintain, repair and replace. The Iowa Court of Appeals reversed, quoting the state’s own life-tenant rule: a tenant “is not bound to make extraordinary repairs, which involve the substitution of new structures for old.” Then it went further and implied a duty onto the landlord, because a fifteen-year lease of a building that exists to hold a temperature cannot work if nobody has to keep the temperature.[2] Both parties spent a bench trial arguing the lease answered the question. It did not.
Illinois got to the same place about a roof, and said plainly what “repair” means. In Sandelman v. Buckeye Realty, Inc. the landlord sued for a declaration that the tenant was in default for not replacing the roof on a long-term commercial lease. The First District held that an ordinary covenant to keep the premises in good repair does not require a tenant to replace a roof that has weathered past repairing, because “the ordinary meaning of the word ‘repair’ is to fix, mend, or put together that which is torn or broken."[3] The rule practitioners recite from these cases is that an express covenant to repair will not be enlarged by construction.[4] Which is true, and beside the point wherever an AIR CRE form is on the table, because that form was written to say the other thing.
The AIR form reverses the default in one sentence and then nails it down with a parenthesis. Paragraph 7.1(a) of the multi-tenant net lease says the tenant’s obligations “shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.” That is the sentence that undoes Sandelman. The parenthesis earlier in the same paragraph is the one that undoes The Printer: the tenant keeps everything in good order and repair “whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises."[1] Age was the tenant’s whole case in Iowa. The form deletes it as a defense.
The 50% test reaches a short list, and the list is different in the two forms. Paragraph 7.1(d) applies only to “an item described in Paragraph 7.1(b).” In the multi-tenant net form, 7.1(b) is three items: HVAC equipment, boilers and pressure vessels, clarifiers. In the single-tenant net form it is six: those three plus fire extinguishing systems, landscaping and irrigation systems, and roof covering and drains.[1][5] So under the single-tenant form a roof past repairing gets the 1/144th treatment. Under the multi-tenant form the exterior roof is the landlord’s job under 7.2, which sounds better until you read that 7.2 is “subject to reimbursement pursuant to Paragraph 4.2,” the common area operating expense clause.[1] It comes back as CAM. Everything else in the 7.1(a) list, the plate glass and the doors and the lighting and the interior walls, is a tenant replacement at full cost with no ratio test and no proration at all.
The single-tenant form says the landlord owes nothing, and then says the landlord buys the unit. Paragraph 7.2 of the single-tenant net lease reads: “it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee.” That sentence is made subject to paragraphs 2.2, 2.3, 9 and 14. It is not made subject to paragraph 7. And paragraph 7.1(d), sitting a few lines above it, says that an item failing the 50% test “shall be replaced by Lessor."[5] I have not found a reported decision reconciling the two, and I would not want to be the one arguing either side of it with a dead chiller on the roof and a tenant threatening to stop paying rent.
The 144 is not the equipment’s life and it is not the term. It is twelve years, flat, for every item and every tenant. ASHRAE’s service life data puts the median life of a packaged rooftop air conditioner, single-zone or multi-zone, at fifteen years.[6] Amortizing a fifteen-year asset over twelve makes each monthly slice about a quarter larger than straight-line over the life the equipment is actually expected to have. And because the tenant only pays the installments falling due inside the term, the same $25,000 unit costs one tenant $5,208 and the tenant next door, who signed a longer lease, the whole thing. So one rooftop unit has a different price for every lease expiration date in the building.
The refrigerant sits inside the numerator, and it is the one input with no published price. The AIM Act phases HFC production and consumption down in steps against a consumption baseline of 302.5 million metric tons of exchange value equivalent: 90 percent of baseline in 2022 and 2023, 60 percent from 2024 through 2028, 30 percent from 2029 through 2033, 20 percent in 2034 and 2035, and 15 percent from 2036 on.[7] R-410A is inside that cap. Contractor pricing guides for 2026 put a 25-pound cylinder at somewhere between $11 and $20 a pound wholesale, and the same refrigerant at $40 to $90 a pound by the time a technician has put it in the machine.[8] Those ranges do not overlap and the guides do not agree with each other, which is the useful part: there is no published index for refrigerant, so the number inside your repair estimate is whatever your contractor’s supplier charged that week. A recharge on its own does not cross the 50% line. A recharge on top of a compressor is different arithmetic.
You cannot retrofit an R-410A unit onto the refrigerant that replaces it. R-454B and R-32 are A2L, mildly flammable, and equipment using them has to be designed and listed to UL 60335-2-40: leak detection, electrical components that will not act as an ignition source, charge limits per the space. An R-410A system was listed under an older standard and was never built to meet any of that, and there is no established field path to convert an A1 system to A2L.[9] Existing R-410A equipment can keep running and can keep being serviced. What it cannot do is be upgraded instead of replaced. So on an aging unit the repair-or-replace decision has no middle option, and the only thing standing between the two outcomes is a percentage in paragraph 7.1(d).
EPA put a thirty-day clock on the “owner or operator,” and the lease splits that person in two. The Emissions Reduction and Reclamation final rule, published 11 October 2024, took effect for leak repair on 1 January 2026. It covers appliances holding 15 pounds or more of an HFC or certain substitutes. The leak rate that triggers action for comfort cooling is 10 percent annualized, against 20 percent for commercial refrigeration and 30 percent for industrial process refrigeration. Above the trigger, the owner or operator has 30 days to find and fix the leak, with verification tests, and yearly leak inspections after that until a full year passes clean. If they decide to retire the appliance instead of repairing it, or if repairs fail, they have 30 days to write a retrofit or retirement plan and one year to carry it out.[10] The rule addresses a single party. The AIR lease gives the repair to the tenant, the replacement to the landlord, and the decision between them to a ratio neither of them controls. Residential and light commercial air conditioning and heat pumps are carved out of the leak repair rules; chillers and certain variable refrigerant flow systems are not.[10] Which side of that line a given rooftop unit falls on is a question about the equipment, and it is worth answering before the thirty days start running rather than during them.
The landlord’s HVAC warranty expires on a condition almost nobody diaries. Paragraph 2.2 warrants that the existing HVAC is in good operating condition on the Start Date, but only “so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date.” The warranty runs six months for HVAC and thirty days for everything else, and if the tenant does not give written notice inside the window, correcting the failure “shall be the obligation of Lessee at Lessee’s sole cost and expense."[1] Two deadlines, thirty days and six months, both measured from a date that is usually buried in a commencement letter nobody re-reads.
None of this is unique to the AIR forms. It is just unusually legible in them, because they wrote the ratio down. The leases that do not write it down produce The Printer: a bench trial, an appeal, and a court implying a duty that neither party drafted, over a number roughly equal to a year’s rent. And the same quiet mechanism shows up wherever a lease lets a capital cost be recovered in slices: compliance retrofits that come back as an operating expense over the life of the equipment, which is how carbon penalties are being pushed at tenants in New York, or the pool of shared costs that never shrinks when a price moves the other way, which is the operating expense ratchet. Equipment cost escalation has already been doing this to build-outs, where the work letter overruns and somebody has to eat the difference. HVAC is the same problem with a compressor attached.
Finding the ratio before the compressor does#
Acrebase reads the repair and maintenance clause out of every lease in a portfolio and lines up the four things that decide this: whether the tenant’s obligation includes the words “replacement” or “renewal,” whether age and prior use are excluded as defenses, which items the service contract clause actually names, and whether there is a cost-sharing test and what its denominator is. It flags leases where a replacement obligation is imposed without a cap, and where a cap exists with an amortization period that does not match the equipment. The clause library holds the version your counsel has already approved, including the fallback you take when the other side will not give you a ratio, so the same position goes into every deal instead of being re-argued by whoever is drafting that week. Old leases and new drafts get read the same way, which matters here because the exposure is mostly sitting in leases signed years ago.
If you are a landlord, know which of your leases use a ratio test and what sits in the 7.1(b) list, because that list is the whole scope of your replacement exposure and in the multi-tenant form it is three items long. Ask for the replacement quote at the same time as the repair quote, from your own contractor, and do it before the tenant’s number is the only one on the table. Keep the service contract condition in paragraph 2.2 and enforce it on day thirty, because that condition is what preserves your ability to say the tenant’s failure to maintain caused the failure, and paragraph 7.1(d) expressly preserves that argument. If you are drafting from scratch, set the amortization period to the equipment’s actual useful life rather than a flat 144, and say whose contractor’s estimate governs. If you are a tenant, the ratio is only worth having with a ceiling attached: a dollar figure above which the landlord replaces regardless of what percentage the repair works out to, so you are not arguing about a fraction with a broken unit on the roof. Ask for the denominator to be the equipment’s useful life, and check that nothing turns the unamortized balance into a payment at expiry. Get a condition report and a service history before the Start Date, not after, because the six-month warranty is short and a unit already near the end of its life will fail inside a term you are about to sign. And if the lease is a single-tenant net form, read paragraphs 7.1(d) and 7.2 next to each other before you assume you know which one wins.
Footnotes
[1] AIR CRE, Standard Industrial/Commercial Multi-Tenant Lease - Net, form MTN-26.10, revised 1 November 2017. Paragraph 7.1(a) requires the Lessee to keep the Premises “in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises),” and provides that “Lessee’s obligations shall include restorations, replacements or renewals when necessary.” Paragraph 7.1(b) lists the service contract items as “(i) HVAC equipment, (ii) boiler and pressure vessels, and (iii) clarifiers.” Paragraph 7.1(c) allows the Lessor to perform on the Lessee’s behalf after 10 days’ notice and charge “115% of the cost thereof.” Paragraph 7.1(d) is the replacement provision quoted in the text. Paragraph 7.2 lists the Lessor’s obligations “subject to reimbursement pursuant to Paragraph 4.2.” Paragraph 2.2 contains the condition warranty and the thirty-day service contract condition. https://www.aircre.com/site/wp-content/uploads/2017/10/MTN.pdf
[2] The Printer, Inc. v. Benskin Bros., Inc., No. 3-1201 / 12-2145 (Iowa Ct. App., 16 April 2014), Danilson, C.J. Fifteen-year lease of an industrial facility in Des Moines, twenty-seven HVAC units, base rent of $360,000 per year, HVAC replacement estimated at $358,900. The court held the lease “does not require TPI to replace the HVAC system and parking lot,” relying on Mastland v. Evans Furniture, Inc., 498 N.W.2d 682 (Iowa 1993) and In re Estate of Gauch, 308 N.W.2d 88, 91 (Iowa 1981) (“he is not bound to make extraordinary repairs, which involve the substitution of new structures for old, or parts thereof for old”). It then implied a duty on the landlord under Restatement (Second) of Property, Land & Ten. § 5.5 cmt. f (1977), which justifies implying a landlord’s promise to make major repairs where it would not be reasonable “in the light of the term of the lease, the rent that is being paid, the purposes for which the leased property is used” to expect the tenant to assume them. On the parking lot the court adopted Miller v. Gammon & Sons, Inc., 67 S.W.3d 613, 624 (Mo. App. W.D. 2001). The award of attorney and expert fees to the landlord was also reversed. https://www.iowacourts.gov/moduledocuments/embed/23526/31201_5EC441422FFA8.pdf
[3] Sandelman v. Buckeye Realty, Inc., 216 Ill. App. 3d 226, 576 N.E.2d 1038, 160 Ill. Dec. 84 (1st Dist., 28 June 1991) - declaratory judgment action by landlords asking whether the tenant was in default under a long-term commercial lease for failing to replace the roof; held that an ordinary covenant requiring a tenant to keep the premises in good repair does not include a requirement to replace a roof that has become so weathered or run down that it cannot be repaired. https://www.courtlistener.com/opinion/2013343/sandelman-v-buckeye-realty-inc/
[4] Harold Lawyer, “Commercial Landlord-Tenant: Duty to Repair - Illinois Law,” collecting Sandelman, Kaufman v. Shoe Corporation of America, 24 Ill. App. 2d 431, 164 N.E.2d 617 (3d Dist. 1960), Expert Corp. v. LaSalle National Bank, 145 Ill. App. 3d 665, 496 N.E.2d 3 (1st Dist. 1986), and Schultz Bros. v. Osram Sylvania Products, Inc., No. 10 C 2995, 2011 WL 4585237 (N.D. Ill., 30 September 2011), for the proposition that an express covenant to repair will not be enlarged by construction and that leases expressly requiring “all repairs and replacements, ordinary and extraordinary, structural and nonstructural” are enforced as written. https://www.harp-onthis.com/commercial-landlord-tenant-duty-to-repair-illinois-law/
[5] AIR CRE, Standard Industrial/Commercial Single-Tenant Lease - Net, form STN. Paragraph 7.1(a) covers the same ground as the multi-tenant form and adds “walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways.” Paragraph 7.1(b) lists six service contract items: “(i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, and (vi) clarifiers.” Paragraph 7.1(d) is identical to the multi-tenant version. Paragraph 7.2 is the no-obligation sentence quoted in the text, and is expressed as subject only to paragraphs 2.2, 2.3, 9 and 14. https://www.aircre.com/site/wp-content/uploads/2017/10/STN.pdf
[6] ASHRAE service life data for HVAC equipment, widely reproduced as the ASHRAE Equipment Life Expectancy chart - roof-top air conditioners, single-zone and multi-zone, median service life 15 years. The underlying data is queryable through ASHRAE’s public service life database. https://costdatabase.ashrae.org/service_life.asp
[7] American Innovation and Manufacturing Act of 2020, enacted 27 December 2020 as part of the Consolidated Appropriations Act, 2021. EPA’s phasedown schedule sets consumption and production allowance caps as a percentage of baseline: 90% for 2022-2023, 60% for 2024-2028, 30% for 2029-2033, 20% for 2034-2035, and 15% for 2036 and after, against a consumption baseline of 302.5 MMTEVe and a production baseline of 382.5 MMTEVe. EPA’s Technology Transitions rule separately restricts HFCs by sector, with a 700 GWP limit for residential and light commercial air conditioning and heat pumps and for comfort cooling chillers from 1 January 2025, and for data centers and computer room air conditioning from 1 January 2027. EPA published a reconsideration final rule on 26 May 2026 (91 FR 31284, effective 27 July 2026) extending several sector deadlines, including cold storage warehouses and supermarket systems to 1 January 2032, and removing the installation deadline for residential and light commercial systems whose components were manufactured or imported before 1 January 2025. The ultimate GWP limits were not changed. https://www.epa.gov/hfcs/frequent-questions-phasedown-hydrofluorocarbons and https://www.federalregister.gov/documents/2026/05/26/2026-10387/phasedown-of-hydrofluorocarbons-reconsideration-of-certain-regulatory-requirements-promulgated-under
[8] Refrigerant distributor and contractor pricing pages for 2026. Royal Refrigerants lists 25-pound R-410A cylinders at $294 and $298, which is about $11.76 to $11.92 per pound wholesale, falling to roughly $10.60 per pound in volume, and puts installed contractor pricing at approximately $40 to $90 per pound. A refrigerant cost-tracking vendor writing for contractors puts wholesale at “roughly $16 to $20 per pound at contractor cost” and installed at “$50 to $90 per pound depending on your market.” There is no published price index for refrigerant comparable to a commodity benchmark, these are trade sources rather than reported data, and they disagree with each other, so treat the spread as the finding rather than any single figure. https://royalrefrigerants.com/blogs/news/how-much-is-410a-per-pound and https://refleaklog.app/blog/refrigerant-cost-tracking-aim-act-phasedown-2026
[9] R-454B and R-32 are classified A2L, mildly flammable, and equipment using them must be designed, tested and listed under UL 60335-2-40, which addresses refrigerant leak detection, electrical components that will not act as an ignition source, and charge limits for the conditioned space. Existing R-410A equipment was listed under UL 1995 or earlier editions and there is no established field evaluation path to convert a listed A1 system to A2L. Existing R-410A systems may continue to operate and be serviced. https://www.mcndist.com/A2LFAQs
[10] EPA, “American Innovation and Manufacturing Act: Leak Repair Requirements for Appliances Containing Hydrofluorocarbons and Certain Substitutes,” fact sheet dated January 2026, describing the leak repair requirements established by the 2024 Emissions Reduction and Reclamation final rule published 11 October 2024 (89 FR 82682) and codified at 40 CFR part 84, subpart C. Beginning 1 January 2026 the requirements apply to appliances with a charge size of 15 pounds or more. Leak rate thresholds at 40 CFR 84.106(c)(2) are 30% for industrial process refrigeration, 20% for commercial refrigeration, and 10% for comfort cooling, refrigerated transport and other appliances. Repair is required within 30 days of the leak rate being exceeded, or 120 days where an industrial process shutdown is needed, with initial and follow-up verification tests. A retrofit or retirement plan must be created within 30 days of deciding to retrofit or retire rather than repair, of failing to act, or of repairs failing to bring the appliance below the threshold, and the work must be completed within one year. Appliances in the residential and light commercial air conditioning and heat pump subsector are not covered; the fact sheet notes that chillers and certain variable refrigerant flow systems fall under their own subsectors and are covered. Appliances using a substitute with a GWP of 53 or below are also excluded. https://www.epa.gov/system/files/documents/2026-01/er-r-fact-sheet-leak-repair-2026-01-13_1.pdf
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