Technology Creating New Lease Issues

December 3, 2004

In recent years, technology has developed at a rapid pace.  This development has had an often unnoticed effect on an unexpected sector of the economy – commercial real estate. 

The continuing development of workplace technology has created a number of new issues for landlords and tenants, including the use of wireless, or “wi-fi,” technology, the treatment of abandoned wires and the effect of electromagnetic fields on computer equipment.

The cost of failing to address these new issues may be significant financial liability.

Wi-fi is a prime example of how new technology is changing the traditional office.  Wi-fi equipment enables wireless devices like laptop computers to communicate with each other or connect to the internet using radio frequencies, rather than wires. 

The advantages of wi-fi over traditional hard-wired computer networks are significant; the computer user’s mobility is increased exponentially, and installation costs are much lower because there is no need to implement a traditional wireline infrastructure.  Whether provided by the landlord or installed by the tenant, however, wi-fi technology also raises significant legal issues.

One concern is the risk of stolen data stemming from unauthorized access to the wireless network.  Because wi-fi uses radio waves to transmit data, the waves are often broadcast beyond the walls of the user’s building or office, where they can be intercepted by anyone else with a wireless connection.  If the wi-fi system is not properly secured, the unauthorized user may be able to access the user’s personal data. 

In the case of a landlord-provided wi-fi network, if a hacker steals a tenant’s confidential data, the landlord may be liable for their negligence in failing to secure the network. 

A prudent landlord will draft their leases to exempt them from such liability. 

Conversely, a sophisticated tenant should insist that the lease require the landlord to maintain the network security at a high standard.

Even if a tenant provides their own wi-fi network, the tendency of radio waves to broadcast beyond the user’s space still raises issues that a lease should address.  For example, what if one tenant’s wi-fi network interferes with another tenant’s wi-fi network?  What if a tenant’s network is strong enough for users to connect to the Internet from the building’s lobby, resulting in a crowded lobby and accessibility problems for other tenants?  What if a tenant decides to recoup their wi-fi investment by offering network access to other tenants for a fee, thereby eliminating a revenue source for the landlord?  A well-drafted lease will address these and many other wi-fi-related issues.

Unfortunately, traditional hard-wired computer networks are not without their own unique legal concerns.  As transmission speeds improve and tenants upgrade from one technology to another, the new equipment may not function with old cables.  Often, new wiring is added and the old, now unused, wiring is left in place. 

Under a relatively new national standard designed to address concerns over flammability and the spread of toxic smoke and gases in the event of a building fire, however, many types of unused wiring that is not properly labeled must now be removed, at a significant cost.

In 2002, the industry standard for electric safety in buildings - the National Electric Code (NEC) - was revised to require many types of unused cables to be removed if the cables are not properly labeled.  The 2002 NEC is incorporated by reference into the Ohio Building Code, and applies to most commercial buildings in Ohio.  Although the Ohio Building Code does not apply retroactively to existing buildings, it nevertheless affects existing buildings when alterations are made which require a building permit. 

The implications of the 2002 National Electrical Code are significant for landlords.  Not only could failure to comply result in a building code violation or jeopardize a property’s fire insurance, but the cost to remove abandoned cables is high.  One industry commentator estimates that removal, which is labor intensive, can cost anywhere from $5 to $25 per square foot. 

There are also hidden costs.  Untangling a mass of cable and removing only the unused wires is risky, as there is a distinct possibility of inadvertently slicing the wrong cable and making a tenant’s computer system inoperable.  If the shutdown leads to lost business, the landlord’s potential liability could be significant.

A prudent landlord will draft their lease to make the tenant responsible for properly labeling or removing all unused cabling when the tenant makes improvements to the leased space, changes its computer equipment or surrenders the premises upon lease termination.  If the tenant fails to properly label or remove unused cables and the landlord has to do so, the tenant should be required to reimburse the landlord for all costs associated with the labeling or removal.  Otherwise, the landlord could find themselves paying these costs. 

If unused cables are left in place without proper labels, and a new tenant plans to make alterations that would require a building permit, the new tenant’s alterations would be subject to the 2002 NEC and the abandoned cabling might have to be removed.  New tenants will generally insist that the landlord pay for the removal under the theory that the cable constitutes leftover materials from the space’s previous occupants.

The increased use of high technology in the workplace is also bringing the issue of electromagnetic fields (EMFs) to the attention of landlords and tenants.  Wherever electricity is utilized, an electromagnetic field is produced.  Common sources include electric transmission lines, transformers, electric service panels, improper wiring and rooftop antenna farms.  Although virtually all buildings have some background EMF levels, a building may also have certain hotspots where the EMF levels are much stronger. 

Until relatively recently, the presence of high EMF levels in a tenant’s space may have gone unnoticed.  Today, however, EMF levels are becoming a concern because of the interference they can cause with sensitive electronic equipment. (Although arguments have been made that high EMFs are also harmful to human health, these arguments have not fared well in court because of a lack of credible scientific evidence). 

A new tenant that unknowingly leases space in an EMF hotspot may find that their computer monitors flicker and lose color, and data saved on magnetic media mysteriously disappears.

EMF problems may also arise with an existing tenant after changes are made to a building’s electrical system, or when an area that was previously not used for sensitive equipment is remodeled as part of a tenant’s buildout.  For an affected tenant, the cost of EMF interference – in the form of lost productivity and the expense of hiring a qualified engineer to identify and correct the problem – can be significant. 

A tenant negotiating a new lease or considering a renovation of its existing space may take several steps to address potential EMF problems, including obtaining landlord representations in the lease that EMF levels in the premises will not exceed certain non-interfering levels, obtaining an EMF survey of the premises to measure the EMF levels or commissioning an electrical engineer to perform a computer projection to confirm whether proposed premises alterations will increase EMF levels in the workspace.

Wi-fi networks, abandoned wires and electromagnetic field interference are only a few of the technology-related issues that landlords and tenants face today.  As technology continues to change, landlords and tenants that recognize and address these changes will be well positioned to mitigate the technology’s unintended consequences.  Those that fail to adapt do so at the risk of significant financial liability.


Reprinted with permission from The Cincinnati Business Courier, December 3, 2004