How to Ensure Your Lease Is Bulletproof for Construction
There is nothing worse than having a landlord and tenant execute a lease document only for a big argument to come up afterwards. I’ve been part of deals with poorly written leases that allow for too many grey areas or topics that are simply not addressed. The result is that the landlord-tenant relationship is severed right as it begins. Here are some tips that can allow for a lease document to set expectations properly so nobody has hard feelings down the road:
1) Develop a design concept that is detailed enough for an accurate budget. Landlords and tenant often are too focused on getting a lease transaction done and not as concerned with ensuring that the Tenant Improvement Allowance (TIA) is appropriate for the tenant’s needs. It should be insisted that a design is developed to allow for an estimator to assign a budget to the project that will fall within 10 to 15% of the actual project costs. If the TIA is based off of pricing down from a design off the back of a napkin, it is likely that the TIA will be too high or too low. “Garbage in, garbage out”.
2) Clearly identify who is paying for what. In a blog post I wrote several months ago, I gave a rough outline for what landlords often pay for; though I cautiously said that this can vary based on market conditions, existing premises conditions and lease economics. Landlords and tenants must properly vet out the entire scope of work. Things that often get forgotten about are pertain to the building core and perimeter conditions.
3) Make sure the lease language clearly identifies necessary timelines and deliverables. Both tenants and landlords need to make sure that they aren’t going to be painted into a corner and that they can make commitments. One common mistake is the lease is silent on when a landlord is required to complete their work to prepare for the tenant’s work. If the landlord is slow on completing this and the tenant needs to be out of their old building by a particular time, conflict is sure to arise.
4) Bring your project team in as early possible to make sure lease terms are all do-able. Imagine going to a restaurant and ordering a pulled pork sandwich from the waiter. The waiter then hollers to the cook in the kitchen, “One pulled pork!” The cook then shouts back, “Pork? This is a kosher deli!” In the same sense, a landlord or tenant shouldn’t commit to the construction section of their lease until they have consulted with construction and design professionals who are sure they can make it happen.
As a project manager, many fully executed leases have been placed on my desk in my career where had a gotten involved from the start I could have prevented lots of tenant and landlord frustration.