A Smart Approach to Developing 'Smart Buildings'

Real Estate & Construction Advisor & Alert

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PUBLISHED ON: May 1, 2003

In the ever-competitive real estate market, building owners and managers are constantly looking for ways to make their buildings look attractive to potential tenants. One
approach that is becoming increasingly popular is the development of “smart buildings” through licenses to service providers. A smart building is one that is equipped with and offers a broad range of telecommunications options to its tenants, such as highspeed internet connections and direct office-to-office communications. In fact, as more companies become reliant on high-tech equipment, developing a smart building is becoming less an option and more a necessity to attracting and keeping tenants.

In addition to attracting tenants, developing a smart building can provide a supplemental source of income to owners in the form of rent from and, in some cases, revenue sharing with telecommunications companies with access to the building. Despite the numerous potential benefits, building owners and managers must be careful to avoid the pitfalls that can arise from licensing space to telecommunications companies. This article will give a brief outline of some of the issues that building owners and managers need to be aware of, but which are often not addressed in agreements offered by telecommunications companies.

  • Conduit Space. In addition to the mere access that will be granted to the company providing telecommunications services, the company will require space for their operational equipment and connections to individual tenants. For such companies, riser space to situate
    the companies’ wire-holding conduits is very important, but can also be very limited within a building. A building manager and owner must know how much riser space is available, how quickly the space can be used up, and how much space will be required by a telecommunications company.
  • Approval of Equipment Location. Once it is decided that a telecommunications company will be granted permission to install its equipment, it is important that the building control where the company’s equipment will be situated. Controlling the location of the equipment,
    by approval of construction plans, enables a building owner or manager to coordinate future construction as well as licensing to other telecommunications companies.
  • Right to Suspend License and Move Equipment. Even after the location of equipment is approved by the building, circumstances may arise during the course of renovation or ordinary repairs that interfere with areas occupied by such equipment.To avoid any problems
    or disputes that may arise in such a case, it is important that the building reserve the right to require the telecommunications company to temporarily suspend its services, or even permanently relocate such equipment, if necessary, so that renovations and repairs can be made.
  • Restoration and Removal. It is likely that the installation of any equipment will physically affect the building in some way and occupy otherwise rentable space. It thus becomes important that at the end of the license term the telecommunications company be
    responsible for both removing its equipment and physically restoring the building after such removal so that the space can be re-rented.
  • Insurance. The provision of services by a telecommunications company will likely require some construction and ongoing equipment operation. Accordingly, it becomes essential that the company be required to obtain adequate insurance prior to any construction taking place and, in some circumstances, throughout the term of the license, so that the building is protected should the equipment be negligently or improperly installed or operated.
  • Indemnification. It is imperative that the building owner and manager be adequately protected from potential liability or loss resulting from damages to its own or third-party property caused by improper installation, maintenance or provision of services and equipment by the telecommunications company. To ensure such protection, it is essential that the extent of the company’s responsibility be clearly set forth in the license agreement.

Lastly, building owners and managers should choose their licensees wisely. Although it may seem beneficial to offer tenants services from as many companies as possible, granting licenses to every company seeking to enter the building can have negative effects, as a company’s ability to address the factors discussed above often depends on its stability. In addition, choosing the proper company will help to avoid inconveniencing tenants who otherwise might be forced to change companies frequently because services become unsatisfactory or unavailable.