Almost every tenant, developer and/or landlord of a commercial space will need to make some changes or improvements to the space to make it work for them. Of course, the extent of needed improvements will vary depending on whether the space was previously occupied, how old the existing improvements are and whether the prior and intended uses are the same. A new building that has not been previously occupied may have bare concrete floors, no drop ceilings and no distribution of mechanical, electrical or plumbing systems and may require extensive improvements. On the other hand, a space that had been occupied for a short period of time for a similar use may require few changes. In this case, the tenant improvements (TI) may be limited to new paint, carpet cleaning and minor touch-ups.
The Negotiation
The landlord’s contribution to a tenant’s buildout is influenced by many factors including, but not limited to, market conditions, duration of the lease term, lease rental rate, upcoming vacancy in the property, lender requirements and much more. Here are five things to look for when negotiation your TI.
1. The Turn-Key Build Out – The best position a tenant can have with respect to improvements is a ‘turn-key’ buildout where the improvements are limited, and the landlord does the permitting, construction, obtains occupancy permits and flips the bill. Rentable vs. Usable – The landlord will either cite certain improvements or cap their contribution at a certain dollar amount based on rentable or usable square footage.What’s Included – The lease may stipulate what the allowance may cover
2. What’s Included – The lease may stipulate what the allowance may cover and the quality of materials used, as well as how the allowance is disbursed.
3. Substantial Completion – It is important to make sure that timing of the completion and usability of the rental space coincide with the beginning of rental payments by the tenant. Many factors may influence this timeline including permitting, architecture, construction, etc.
4. Additional Costs – There may be cost overruns on the improvements. It is important to have a mutually agreed upon approach and plan in place for any contingencies.
Creative Builds serves as a Tenant Representative and can assist you in getting the most from your TI allowance.
The Construction Process
Once TI has been negotiated, it is time to begin the construction planning and management of the project. Depending on the size and scope of the improvements, you will begin with the design, planning and construction cost estimation. It is important to ensure you have an experienced, licensed team familiar with the building codes and regulations – in order to ensure that you meet the municipal requirements for design and permitting. Creative Builds can provide you with a preliminary cost estimate based on your specifications. It is important to note that changes to the plans that occur prior to submission may cause the cost estimates to vary. Always ask for a detailed cost estimate once you reach this stage. Additionally, it is important to include an allowance for any areas that might remain unclear to cover any contingencies. Construction progress should be evaluated on a regular basis – Creative Builds automatically provides weekly status reports. These reports include building department inspection results, pictures of progress and any updates to the schedule.
Certificate Of Occupancy
Once the project is completed, you will obtain a certificate of occupancy – showing that the work has been inspected and approved by all the relevant local authorities. Final Walk Through. Once the construction process has been completed, a final walk through will be conducted with the contractor. This will allow everyone involved to verify that all the items have been completed and that any minor items are finished or corrected.
Construction Documentation
Keep copies of all the drawings, designs, contracts and other documents involved in your TI construction project. These will often be a starting point for any changes, fixes or alterations you may need in the future. We have a proven record of completing TI projects on time, on budget and with the highest quality standards, and have extensive experience in the San Diego market. Our process works, but we’ll let our projects speak for themselves!