A commercial lease will often flesh out the details concerning Landlord’s Work, Tenant’s Work and Tenant Improvement Allowance.
Landlord’s Work is, as the name suggests, the work to be performed by the Landlord. The scope of work will often be prepared by an architect and attached to the lease in the form of a Landlord Work Letter. A floor plan may accompany the narrative description. The lease may also allow the Tenant to make certain upgrades at Tenant’s cost. For example, if the Tenant chooses to forego building standard finishes in favor of more expensive finishes, the Tenant may choose to pay the difference.
The lease may state that the rent commencement date shall occur upon the substantial completion of Landlord’s Work. Substantial completion is typically a defined term. The basic concept is that once the space is ready for the Tenant to occupy, but for minor “punch list” items, the Tenant should begin paying rent.
Tenant’s Work, as the name suggest, is the work to be performed by the Tenant. In some cases, the Landlord may deliver a “vanilla box” and the Tenant’s Work is to build out the demised Premises in order to make it ready for occupancy. The lease will typically require the Tenant to submit plans to the Landlord for approval, pull permits, provide proof that the contractors have been paid, and close permits.
A Tenant Improvement Allowance is a term used to describe a scenario where the Tenant builds out the Premises (or a portion of the Premises) at the Landlord’s expense. For example, a Landlord may deliver the space “as-is” with a $30,000 Tenant improvement allowance to renovate the restrooms.
Suffice it to say that these terms are some of the most important terms in the lease and it is the attorney’s jobs to make sure that their client’s interests are protected. When it comes to commercial leases there is no “one size fits all” – each deal is different. An experienced real estate attorney can help make sure that the client understands the language in the lease and that the lease accurately reflects the deal terms.
*Thank you for taking the time to read this article. This article is part of our “Commercial Leasing for Non-Lawyers,” a Blog Series on Commercial Leasing. Other aspects of commercial leasing transactions in New York are discussed in other Parts of this series.
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