Last month I addressed how to bridge the gap between the capital required to remodel and refurbish leased premises and the how much of that cost the landlord is willing to fund.  But there are nuances within those costs that, if overlooked, could turn out to be very costly to the tenant.

 

I recently negotiated an office lease deal that involved tenant improvements (T.I.s) well above what the landlord saw fit to pay and a tight move-in deadline on top of that.  The brokers on the deal and this sophisticated landlord put their heads together to see where cost and time savings could be found (referred in the trade as “value engineering”)  The landlord indicated that he would have his contractor do the improvements without pulling permits with the City which would save time and trouble.  Candidly, this “under the radar” approach is taken quite often if the improvements do not involve extensive structural, electrical, or plumbing improvements.  But there are risks.

 

As we were drafting the language surrounding the landlord’s T.I. allowance, I made sure that the tenant’s exposure to costs over the allowance were limited to “hard” construction costs – the cost of the general contractor’s labor and materials.  All “soft” costs – architecture, engineering and other fees – would be 100% the landlord’s responsibility. 

 

Guess what happened?  A City building inspector on his rounds spotted a large dumpster behind the building, went upstairs to take a look, and promptly slapped a stop notice on the door frame of the suite, halting construction on the spot.  Busted!  Now formal plans had to be drawn and submitted for plan check, and the cost of permits, and penalties would be incurred.  Because of the language I had worked into the lease, the tenant was spared many thousands of dollars of unforeseen additional cost.  The delay to the completion date was the only problem they had to deal with.

 

The moral of the story?  Don’t let your clients, friends or family members  negotiate a commercial real estate lease without having an experienced tenant rep broker at their side!