Only in the most unusual circumstances does a tenant find a unit of office space already built out to accommodate its own operational requirements. Most units must be either partially or completely rebuilt before the tenant can move in.
If the tenant elects to take responsibility for the construction, a contribution by the landlord, in the form of either cash reimbursements or rent abatements, can be negotiated to offset some or all of the cost. This, of course, is a negotiable item.
Most tenants, though, prefer that the landlord build the space, since the landlord has more construction experience and can take advantage of volume discounts on materials. This also shifts the responsibility for completion of work to the landlord, and saves the tenant a considerable amount of planning and supervision time. It requires, however, complete planning of specifications prior to signing the lease, since the document will state, in a “workletter” addendum, the landlord’s precise responsibilities in minute detail. The workletter specifies the quantity and type of walls, doors, frames, floor covering, lighting and all other components of the tenant buildout.
Some landlords offer a Building Standard Workletter to all new tenants in the building. It is rare, though, that the specifications in such documents are adequate to meet the tenants’ needs. This document must be carefully scrutinized, and compared with the tenant’s requirements. The cost of items not covered in the standard workletter must be priced and negotiated. Substitution and unit-price clauses must also be negotiated in order to protect the tenant from being charged for materials that are not used.
The workletter, and other sections of the lease relating to construction, are among the most important to properly negotiate. There must be provisions governing delays in completion, for example, which can cause the tenant operational and financial difficulties. A variety of notice provisions must be negotiated, including a requirement that the landlord notify the tenant of a firm completion date in a timely manner.
During the course of a lease, additional renovations are often required. Unless the tenant’s rights to make such alterations are specified in the lease, the landlord may charge unreasonable fees to allow the work to be done. Other necessary provisions include the tenant’s right to choose a contractor, and a release from restoration of the space to its original condition at the expiration of the lease.
Your Advisor Should…
