Oftentimes when I am negotiating a lease transaction, the question of tenant improvements (i.e. construction) is a primary focus. Some landlords will only provide an allowance, which caps the amount of money they will spend. Others will agree to a turn-key space once they are comfortable with the costs involved. Which one is best for the tenant? It depends.
If you agree to an allowance, than you need to do some homework BEFORE you sign a lease. You should have an acceptable floor plan or scope of work defined and this should to be priced out by at least one of the landlord’s primary contractors. The landlord should provide that estimate to you for your review and then you need to factor in soft costs (architectural, engineering costs, construction management fees, etc.). Hopefully the allowance covers all of those costs. If it doesn’t, then you may want to negotiate some more. If the allowance exceeds these costs, what happens to the excess? It depends on what is negotiated.
For a turn-key build-out, the landlord takes on all the risk of a mutually agreed upon scope of work or floor plan. The key to this is that your scope of work (preferably a floor plan) should have a tremendous amount of detail so nothing is left to chance. The benefit to the tenant is that the landlord takes on all the risk of the construction costs and potential change orders. The downside for the tenant is that the landlord keeps whatever savings it is able to obtain by cost-engineering the construction.
With construction costs continuing to rise, this issue is an important one that must be addressed. You need an expert to guide you through the decision-making process on what works best for you. Give me a call so I can help you navigate through this and other important issues relating to your office lease. I am well-regarded for my fresh, innovative approach to creating solutions for a multitude of clients.
