Cold storage leases look like industrial leases until you reach the operating costs. Then they diverge sharply, and the clauses that decide whether the deal works for you are rarely the ones being negotiated hardest.
Why cold storage leases are different
Two facts drive everything else. First, energy is a very large operating cost: refrigeration runs continuously and the bill scales with temperature, throughput, and how leaky the envelope is. Second, the refrigeration plant is a major capital asset with a finite life, sitting inside the building, and someone has to pay to replace it.
A dry industrial lease has no equivalent of either. Which is why lifting one for a cold building produces a document that is silent on the two things most likely to cause a dispute.
The three structures
Triple net (NNN)
The tenant pays base rent plus taxes, insurance, and maintenance. Most common for single-tenant cold storage. It looks clean, and the argument is entirely about what “maintenance” includes: specifically whether replacing a compressor is maintenance or a capital improvement.
Gross or modified gross
The landlord covers some or all operating costs within the rent. Rare in pure form for cold storage because the landlord is then absorbing an energy bill they do not control. Where it appears, it is usually modified with an energy carve-out.
Hybrid with equipment provisions
Increasingly the norm on larger facilities. Base rent and operating costs are handled conventionally, and the refrigeration plant is dealt with in its own schedule: maintenance standards, service intervals, capital replacement responsibility, and condition on surrender.
The energy pass-through
This is the clause that decides the economics, and it is where the most money moves.
- Separately metered: the tenant pays their own consumption directly. Cleanest, and only possible if the building was designed for it.
- Pro-rata by area: simple, and unfair to whichever tenant runs warmer. A frozen tenant and an ambient tenant do not consume alike.
- Pro-rata by cubic volume and temperature zone: closer to reality, and correspondingly harder to administer.
- Landlord-capped: the landlord absorbs consumption above a stated threshold. Attractive to tenants, and expensive to a landlord who has not modelled it.
In a multi-tenant building, ask how energy is apportioned before you get to lease documentation. If the answer is pro-rata by square footage and you are the frozen tenant next to a dry-goods neighbour, you are subsidising them for the whole term. This is worth more than a dollar or two of base rent.
Refrigeration plant obligations
A plant has a finite service life. Somewhere in a long lease, major components reach it. Get these four points explicit:
- Who maintains it, to what standard, and on what service interval, with the service records available to both parties.
- Who replaces it when a major component fails. This is the expensive one. A tenant accepting “repair and replacement” without a capital carve-out has accepted an unbounded liability.
- Condition on surrender. “Good working order” is not a standard. Tie it to a documented condition report taken at commencement.
- What happens during a failure. Rent abatement, the landlord’s repair window, and who pays for emergency storage or product loss.
That last point is routinely omitted, and it is the one that surfaces at the worst possible moment.
Terms worth attention
- Term length. Cold storage fit-out is expensive and specific, so terms run longer than dry industrial. Longer term means more exposure to the plant question above.
- Temperature guarantee. If the landlord operates the plant, the lease should state the temperature the space will hold and the remedy if it does not.
- Racking and equipment ownership. Who owns the racking, and does it stay at the end.
- Restoration obligations. A requirement to strip refrigeration and restore to shell can be a very large end-of-term liability. Negotiate it at the start, when you still have leverage.
- Expansion rights. Cold storage is thin. A right of first refusal on adjacent space is worth having.
Before you sign
- Is energy separately metered? If not, exactly how is it apportioned?
- Who pays for major refrigeration capital replacement?
- What is the temperature guarantee and what is the remedy for breach?
- What is the surrender condition, tied to what baseline document?
- What happens to rent and to product during an extended plant failure?
- Are there restoration obligations at end of term?
- What is the remaining service life of the plant today?
That last question is not a legal one, which is exactly why it gets skipped. Get the plant assessed before you sign, not after.