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Understanding the Tenant Improvement Workletter

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When leasing commercial office space to house your business, you may be lucky enough to locate a space that is just perfect for your needs without a single change. That, however, is not usually the case and changes may be required to fit the office space to your specific requirements. Before beginning any negotiations, it is important to understand two key terms:

Tenant Improvements (TI): This term refers to the construction or remodeling of leased commercial real estate that are made to accommodate the needs of the lessee. This could include adding or removing interior walls, signage, lighting, wiring, flooring, or other changes needed. The cost of these changes is negotiated between the landlord and lessee and agreement must be reached as to which party will pay for exactly what expenses.

TI Workletter: This is a written legal document negotiated between the landlord and lessee that outlines exactly what office building standards are used in any TI construction and the number of items supplied in the leased space such as light fixtures, power outlets, and other items required to make the space suitable for the lessee. The document also outlines how much the landlord will pay and what financial responsibilities on the part of the lessee may be.

TI Workletter Issues:

The Tenant Improvement Workletter may include:

  • Exact descriptions of the TIs to be built
  • The design process to be followed
  • Contractors or other parties that will perform the TIs
  • Who will pay for what improvement
  • A clause regarding changes the tenant may want to make after initial design
  • Definition of what happens if TI work delays result in impacts to the tenant move date

Scope of Work and Changes in Scope

The landlord’s architect, planner or designer prepares plans and specifications defining the TIs to be performed. Because the landlord likely owns the entire building, he or she will control this work because of potential impact of the TIs on the building or building infrastructure. The tenant should be consulted and involved in the process and a time schedule should be agreed upon. The landlord may agree to pay for certain basic improvements but if the tenant wants to make upgrades from the building standard, the costs will be levied on the tenant. Tenant requested changes are usually paid for by the lessee. If the lessee requests changes in mid-stream, the change in scope will be at their expense and may impact the move in date without any penalty on the part of the landlord or construction team.

Construction Phase

The landlord will normally be the party in charge of obtaining bids for agreed upon changes, selecting the contractor and obtaining permits, as well as managing the work and ensuring that as-built drawings are prepared. However, should the tenant be permitted to perform the TIs, he or she will be required to take care of all items above plus obtain payment and performance bonds and obtain lien waivers from all parties working on the commercial office space.

Payment for Tenant Improvements

The workletter must specify exactly who is responsible for paying for the TIs and how much will be paid. In some cases, the landlord will agree to a “turnkey” TI where all costs are absorbed by the landlord for the initially agreed upon improvements. Leases commonly provide a tenant improvement allowance stated in an amount per square foot rented and in this case the landlord pay the allowance and the tenant pays for all improvements. The workletter must outline exactly what the allowance can be used for such as planning, permits, and construction, as well as what can not be upgraded with the funds from the allowance, often items such as telecommunication wiring, trade-specific fixtures, and equipment.

Work Delays

This portion of the workletter should address exactly what happens if the facility is not ready for tenant occupation by a defined move in date. Usually the landlord does not have any financial liability because of late delivery and the lease normally remains in effect during any delays. If the delay is caused by the tenant, there is no reduction in rent due. However, the tenant should pay close attention to workletter clauses regarding delays and negotiate a better outcome if the delay in work is not their fault. There may be consequences negotiated into the workletter that result in contractor penalties or rent abatement if the delays are in no way caused by tenant delays or tenant requested changes of scope.

This is one of the areas that a good tenant representative will take the lead on assist you. Understanding the 'norm" in your are is important to make sure you get as much of an Office Space Tenant Improvement allowance as possible.

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Lease Negotiations , Office Leasing Tips , Office Rental , Tenant Representation

Video: 3 Biggest Mistakes Office Tenants Make When Looking for Office Space

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Check out our newest video presentation of the 3 biggest mistakes tenants make when looking for office space.

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Miami Office Space , Office Leasing Tips , Office Space Negotiations , Tenant Representation , Video

What is Your Landlord Hiding in the Fine Print?

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When you are considering leasing an office warehouse space or any space for that matter, you want to go in to it with eyes wide open.  The following will help you understand what to consider and hopefully help make your experience with leasing space a better one!

 Students of history recall the stories of the landlord abuse that occurred in the late 1800’s/early 1900’s when tenant farming, mining towns and tenant exploitation were common.  Fortunately, these situations have been largely extinguished in the US, but adversarial feelings between landlord and tenant remain.  Is landlord abuse prevalent today when leasing space? Are they truly ogres? Or does the modern media sensationalize a few occurrences to feed this perception?

 In our experience, most landlords are reasonable and fair. However, since they know the tools of the trade, often they get the upper hand in the lease agreement and structure contracts to their advantage.  Many tenants, surprised by requirements of their lease after they move in, develop an “us vs. them” attitude.

 Tenants can level the playing field by taking a few minutes to unravel the “legalese” of the lease agreement before signing.  Often a 20+ page document, however, makes this a daunting task– unless you know what to look for.  Here are 4 costs that some landlords quietly shift to tenants and what tenants can do to protect themselves:

  1. NNN Expenses: Check the lease for the term “base rent.” If you find it, the lease you are about to sign is a “triple-net lease” or NNN Lease.  This type of lease requires the tenant to pay for all of the expenses to run the property (such as property tax, insurance, exterior painting, etc.). If any of these expenses increase, it’s the tenant that pays more, not the landlord.  If the building is painted or the asphalt is replaced, once again, the tenant pays the bill. And the worst part? The tenant doesn’t get to vote.  It’s not a HOA. 

    Tenant Protection: Sign a “gross lease” vs. a NNN lease.  Gross leases require the landlord to pay the property operating expenses.  If a gross lease is not available, negotiate limits to NNN expenses into your lease agreement.
  2. Interior Maintenance Costs: [Skip this section if your lease says “Full Service Lease.” Full Service Leases are typical of office buildings.]  Most leases require tenants to maintain everything inside of their space at their own cost. Maintenance can include bath fixtures, light fixtures, carpet, drywall, etc.

    Tenant Protection: The easiest way to avoid these costs is to lease space at newer properties.  Prior to move-in, request a walk-through with the property manager to document any defects in writing and with photos.

  3. Utility Costs: Responsibility for utility costs varies from landlord to landlord. Ask questions to determine who pays for what. The cost for electricity/garbage/water may be included in the rent at one property but not at another.

    Tenant Protection: A good understanding of the utility costs is required to get a true “apples to apples” comparison of the cost to lease different spaces.  It also prevents an unwelcome surprise after you move in.  No one wants an unexpected $300/mo. utility bill!

  4. HVAC Costs: Heating and cooling systems are big ticket items. Once again, treatment of HVAC costs varies. Find out who is responsible for maintenance and major repairs/replacements. Maintenance may be only a few hundred dollars per year, but a replacement can cost over $5,000.

    Tenant Protection: Negotiate a limit on contributions to HVAC repairs - $500 per year for example.  Check replacement language – it isn’t uncommon for tenants to receive a $3,000 bill for a replacing a 15 year old system when they’ve only occupied the space for two years.

 Again, most landlords are fair.  If you are billed for an unexpected expense, contact your landlord.  Compromise may be possible.  Often, they aren’t the ogres they are reported to be.

Guest Post by: Barry Raber
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Office Leasing Tips , Office Space Negotiations

What You Need to Know About the New Final Regulations of the ADA Amendments Act of 2008 (ADAAA)

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Not only did the Government enact the American with disabilities act, but also the ADA Amendments Act of 2008 (ADAAA) of which the final regulations were published in the Federal Register on March 25, 2011. Find out more at Questions and Answers on the Final Rule Implementing the ADA Amendments Act of 2008.

From the Q & A and ADAAA

"These regulations apply to all private and state and local government employers with 15 or more employees, employment agencies, labor organizations (unions), and joint labor-management committees. The Amendments Act retains the ADA's basic definition of “disability” as an impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having such an impairment. However, it changes the way that these statutory terms should be interpreted in several ways, therefore necessitating revision of the prior regulations and interpretive guidance contained in the accompanying “Appendix to Part 1630—Interpretive Guidance on Title I of the Americans with Disabilities Act,” which are published at 29 CFR part 1630 (the appendix)."

"Both public comments and comments received during the inter-agency review process under EO 12866 highlighted a variety of limitations in our analysis. Indeed, the alternative that we later present indicates that the figure of 8.2 million people with disabilities used in the preliminary analysis significantly underestimated the number of workers with impairments whose coverage under the law will now be clarified."

"Thus, based on this data, the number of individuals with the impairments cited in § 1630.2(j)(3(iii) could be at least 60 million. In addition, we know that people with many other impairments will virtually always be covered under the amended ADA definition of an impairment that substantially limits a major life activity or record thereof."

"If we assume 64% of individuals with these disabilities are in the labor force, then the number of labor force participants whose coverage is clarified under the ADA is approximately 38.4 million."

"The most recent JAN study, issued September 1, 2010, reported a mean accommodation cost of $1,183, based on 2009 data.Show citation box Using estimates of both the mean and median cost of accommodations, the preliminary analysis estimated that the ADA Amendments Act and these regulations would result in increased costs of reasonable accommodation of from $19,000,000 to $38,000,000 annually."

For more information visit The Job Accommodation Network (JAN) - the leading source of free, expert, and confidential guidance on workplace accommodations and disability employment issues. Working toward practical solutions that benefit both employer and employee, JAN helps people with disabilities enhance their employability, and shows employers how to capitalize on the value and talent that people with disabilities add to the workplace.

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Three Ways to Save Money in Your Office Operations

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Saving money in operating your office is always a plus and there may be ways you can save a lot with little effort that you may not have thought of before. Even small savings add up over time and can really make a difference in your bottom line over the course of a year.  Here are some ways that you may find fit perfectly into your business that make sense for saving dollars:

Print Responsibly: It costs money to print; paper costs money and uses up resources even if you choose recycled paper. Do you print every version of a contract or document, even when you know there will be several more versions before document signed off? You can red-lined and add comments using these functions built into all of today’s word processing software and it is much more efficient than hardcopy and red pen mark ups. It’s even more cost effective using electronic mark up because corrections and changes can be accepted or rejected by the document owner automatically rather than being retyped. Print only those documents needed for maintaining legally required files, customer contracts, and important reference documents you will use often. Any reference document you will only refer to only occasionally should be stored on your computer or network server and accessed as needed. Not only do you save money but also the number of trees being cut for paper products is reduced, reducing your organization’s environment footprint.

Right Source Labor: Overtime for employees is expensive and sometimes really isn’t welcomed by the employee needed for more than 40 hours when projects pop up needing attention. Employee burnout is always a problem and asking for extra hours can add to this problem. Of course, only trusted long-term employees can perform many of the tasks in your business, but temporary or part-time workers can easily do others. Hiring temporary labor from agencies can be nearly as costly as asking your employees to work overtime. Maintain a list of local freelance workers who can be called in for periods where routine tasks must be performed. Examples include preparing mailers and applying mailing labels, entering data into spreadsheets, copying and collating handouts for seminars and presentations, and there are many other tasks you’ll have based on what your firm needs. Often, you will find some of your employees have teens who would love the chance to earn a bit of extra money by working a few hours as needed. You can find temporary staff by posting on for your area.  A freelance worker working virtually from a location other than your office may easily do some tasks, such as entering data into spreadsheets from another online source. Save expensive overtime costs for when you really need their expertise during extra hours.

Right Size Travel Expenses: Sometimes you simply must travel to attend a meeting or seminar. Perhaps you must visit an important client in another city. But most company travel budgets can be trimmed significantly if technology is used effectively. Invest in good quality video teleconferencing equipment and, for the cost of one or two meetings in another state, you can hold meetings face to face with people around the world forever. The equipment today is affordable and allows people to feel as if you are sitting at the table with them, even if you are in another continent. Even if you do feel a human presence is essential at the client’s site, when you do need to travel you can often reduce the number of people that go on the trip, combining video conferencing with on-site representation. You’ll recoup the investment in any equipment you purchased and the additional savings will amaze you after only a short time.

Green Office , Office Space