By: Julius Shapiro
If you own a commercial property, you should anticipate certain work order requests and be prepared with stipulations and guidelines. The following is general information for work orders between landlords and commercial office tenants. This does not pertain to retail or restaurant leases, though it may be partially applicable to industrial leases.
1. Base Building:
- Landlord needs to provide a list of base building elements for which landlord is responsible. This is true whether landlord is delivering a brand-new building in “shell and core” condition, or is converting a building from previous use and creating an office building (ie: cold storage building).
- Regardless, the tenant must know where the landlord’s “work” or construction elements end, and the responsibility of the tenant begins. A good rule of thumb is that anything that improves and impacts the overall building is the landlord’s responsibility, and anything specific to the tenant becomes the tenant’s financial responsibility.
2. Base Building specific to tenant’s space: The landlord should typically pay for the below items that directly impact the tenant’s space:
- Floor leveling
- Demising walls
- Window treatments, such as blinds
- Solar film on the windows
- Fire/life safety to current code compliance
- ADA built to current code compliance
- If a full-floor tenant, then both landlord and tenant must agree on who pays for the bathroom(s) compliance with ADA (especially if it’s an existing bathroom in a second-generation or older space).
- If a full-floor tenant, then landlord and tenant must also agree on the floor’s elevator lobby. Landlord might have a building standard specified, which tenant could negotiate for credit so that the tenant could build a lobby that is customized to its own design.
- Critical dates and schedules for delivery: tenant needs a clear understanding of not only what, but of when elements will be delivered and completed (ie: elevators).
- Supervisory fees: landlords charge a supervisory fee for overseeing construction, whether or not they are responsible for the work. That fee is negotiable, but keep in mind that it serves as a profit center for the landlord.
- Contractors preferred by the tenant should be pre-approved by the landlord before the lease is signed, and included in the lease itself.
- Payment schedule of Tenant Improvement Allowance needs to be nailed down in writing (who holds the money; proof of work completed, reimbursement schedule, etc.) This should be spelled out in the workletter.
- Signage: if there is exterior signage on the building itself, the tenant needs to negotiate who pays for such signage. Generally, the landlord only pays for standard interior lobby directory signage, and not for any other kind of signage (ie: interior column, exterior pylon, within space itself).
4. Specific items for tenant’s benefit in work order:
- A force majeure clause permits extra time for tenant to complete the improvements if there is a strike, lockout, landlord delay and other things beyond tenant’s control.
- Tenant must incorporate terms of payment in the work order in their agreement with the contractor.
- It is helpful to the tenant to hire a contractor who is familiar or done work for the landlord at a prior time.
5. Other items to consider:
- After the construction is finished—if there is money left over—who receives the extra funds? Can the tenant use the extra money for personal items for their office use?
- How long is retainage held by the landlord? What triggers a release of the money?
- If not in the lease, it should be stated in the work order what improvements the tenant can take with them when they vacate.
- The tenant’s insurance broker should coordinate with landlord’s insurance agent as to what insurance coverage each tenant and landlord is required to carry during the construction.
- Within the lease, it is good to determine who is responsible for the cost of a zoning change, such as sprinklers. Is it the landlord, tenant or both?