The Work Letter section of a commercial office lease is where you can find the key terms the Tenant and Landlord agreed to regarding all the items related to the upcoming office tenant improvement project. It’s critical that before the lease is finalized and executed that the tenant is comfortable with all of the terms in the Work Letter.
These key points will ensure the Work Letter works in your favor:
Turn-key vs. Allowance?
Is the Landlord doing the work (turn-key), or providing a Tenant Improvement Allowance and letting you do the work? If they are doing the work as a turn-key, be cautious if the scope of work is more extensive than a basic paint and carpet refresh, or other minor construction. We’d highly recommend that the Work Letter reference a detailed set of architectural drawings if the scope of work is anything too complicated. Turn-key projects can be at risk of a misalignment of scope and cost responsibility.
Landlord Space Delivery
If the Tenant is not taking the leased premises as-is, the “Landlord Work”, or the scope of work required to be completed by the Landlord upon delivery of the space, must be clearly defined. From a scheduling standpoint, it should be outlined when the Landlord Work must be complete by, and what date the space is officially delivered to the Tenant (sometimes two different time frames).
A well written Work Letter should define what existing infrastructure will be in place for the Tenant. For example, will there be fire sprinkler branch lines in place, or just the main loop? What is the capacity of the electrical service offered for the premises?
All construction projects will encounter inheriting existing field conditions. Some building codes such as those pertaining to accessibility (ADA) may be triggered just by pulling a permit and it is important to identify if the Tenant or Landlord is responsible. Be aware of cost responsibilities of other conditions including hazardous materials (and associated testing) and walls & floors requiring above standard preparation for finish materials to be installed.
Getting The Most of the TI Allowance
Many leases poorly define exactly what the Tenant Improvement Allowance can be spent on. Is it just reimbursement of the general contractor’s invoices? Can design fees, permit costs, or other expenses be included? Similarly, many leases have a Landlord Construction Management Fee listing a percentage of Construction Costs that go back to the Landlord for oversight, but the “Construction Costs” definition can sometimes be vaguely outlined.
The Work Letter should also spell out what is required of the Tenant to receive reimbursement of the Tenant Improvement Allowance to allow for Landlord review and payment to be expedited.
With a well written Work Letter, your project will be set up for success!