For Whom is the Space Being "Built to Suit",
The Tenant or the Landlord?

© 1999 by CSI Consultants Inc.

You find space you like and negotiate an acceptable annual rent.  The deal includes interior construction at the landlord's expense, so that it will be rebuilt to meet your needs.  After you've committed yourself to the transaction, you find out that the landlord is only paying part of your construction costs.  Before you can move in, you have to either write a big check or agree to an increase in the rent.

This is a common budget-buster.  It can be avoided if you are properly informed and represented.

Terms like "built-to-suit" or "new building installation" should not be taken at face value.  The landlord's actual commitment is specified in an amendment to the lease called a Workletter.  This document  specifies in detail the quantity and quality of everything the landlord agrees to put into the space, including walls, doors, hardware, ceilings, floor coverings, outlets, lighting, plumbing and paint.

If you expect anything that is not listed in the workletter, you can't expect the landlord to pay for it.  If the workletter isn't properly negotiated, you
can expect to incur substantial unexpected costs.

While your broker negotiates the lease's business terms, and your attorney negotiates the legal terms, your architect takes the lead in negotiating the workletter.  There are two critical issues involved here that can keep the cap on your bottle of headache remedies.

1.  Substitution Clauses
The workletter will not only omit items that you want.  It will also include items that you don't need, for which you should receive a credit.  Language must be included that guarantees your right to get these credits.

2.  Unit Prices
If there are to be any credits, or additional charges, they should be calculated according a unit price list included in the document.  If you want to add or remove a door or a partition from the specifications, for example, the dollar amount involved will then be known in advance.

There is usually plenty of flexibility in negotiating the workletter, since the landlord is only concerned about total cost.  If you need less than the standard ratio of private offices, for example, you should be able to trade that off against higher quality carpeting.  But the negotiation must be done as early as possible, with an experienced architect on your side.

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