So tell me, how does it feel when you negotiate $100,000 of landlord-funded tenant improvements in your lease, you use $75,000 to get the premises ready for your occupancy, and then find out there isn't any allowance left a year later
to replace the broken down air conditioning unit on the roof? You just got the shaft, dear tenant...twice!
That is a common retail refrain, but it happens a lot in the worlds of industrial and office real estate. Most leases - especially the commonly used "industry standard" ones such as those published by AIR Commercial Real Estate Association - are skewed heavily in the landlord's favor. Language in these leases often state that the landlord allowance is for
construction and improvements to the premises that are performed prior to the lease commencement date; in other words, "use it" for only this work and within this time frame "or lose it". Most tenants and many inexperienced or oblivious real estate brokers don't give this much thought. The tragedy is that most landlords don't even pay close attention to this detail; that is, until the tenant surprises them down the road with a request for funding for subsequent improvements, and
then they turn the tenant down flat.
I'm giving away a valuable trade secret here, so pay attention! Delete the language that puts time restraints - direct or implied - on the use of tenant improvement dollars provided by the landlord. It is surprising how frequently I find landlords accepting this change to the lease. The poor soul mentioned at the top of this article could have been $25,000 to the better if his broker had done this for him!
What I can't
tell you is the secret to getting the landlord to allow you to use your tenant improvement allowance for fixtures and telecom systems that are typically disallowed in standard form leases.
For that one, you will have to pick me to represent you!
