Key Issues Regarding Tenant Improvements
Most commercial leases require some level of costruction or remodeling to make the leased premises suitable for the tenant. The following are some key issues to consider when entering into a lease that requires construction or remideling:
- What type of shell is being delivered? Is the Landlord going to demolish the prior tenant's build-out? If so, is the Landlord delivering the space vanilla shell or build-to-suit? Does the lease contain detailed descriptions of the scope of each party's required work?
- Tenant Improvement Allowance: How much, how and when is it paid, is it enough? If the tenant does not use the full TI allowance, can Tenant keep the unused amount?
- Does the TI Allowance cover architecture and engineering fees, or just contractors, subcontractors and materials?
- Can the tenant keep any of the existing improvements of the prior tenant (i.e., the HVAC unit)?
- What type of Landlord review of Tenant plans is required? When are plans due to the Landlord? How long does the Landlord have to review them before getting back to the Tenant?
- Does Tenant's construction have to be completed by a certain time? If so, are there penalties incurred if not completed by this deadline?
- Does the Landlord get paid an administrative fee to review the construction (frequently 15%)? Is the Landlord paid an additional fee to review plans?
- Is the Tenant required to use union labor?
- Is the Tenant required to get its general contractor approved in advance or does the Landlord get to choose the contractor?
- Does the Tenant Improvement Allowance have to be paid back to the Landlord if there is any default under the Lease? If so, is it a full reimbursement or is it amortized over the lease term?
