Often a tenant will comparison shop for just the right space in a building, only to find that the building with the ideal location and available space does not have the space built out as the tenant requires. Either the landlord or tenant has to build out the space to make it work for the tenant’s intended purposes. Too often however, the lease or offer to lease negotiations surrounding the construction or alteration of the existing premises focus only on the most obviously required installations or changes to the physical structure of the premises (such as lighting, painting, installation of demising walls, etc.) and who will pay for those alterations. However, tenants would be wise to consider and perhaps negotiate a number of related issues that will help ensure the space will look and be capable of being used as intended. A few of those issues are discussed below.
- Base Building Systems – Availability and Capacity
One issue often overlooked is the existence and capacity of building systems, as they are hidden from view. These items can be of critical importance to a tenant that may require them to operate its permitted use the way it intends. Consider for example a tenant that intends to operate a printing business but finds out during its fixturing period that the electrical capacity of the premises is not great enough for its printing business (the space was previously used as basic office space). While it could involve only an inexpensive fix to increase the electrical capacity from 100 amps to 200 amps, if the electrical distribution system in the building is very old, it may be impossible to increase the available electrical capacity to the premises without reallocating it from other premises or rewiring the building and not just the premises. Tenants should be mindful of what their intended use will be and determine what building systems are necessary and in what capacity (with professional assistance if necessary). In many cases (particularly where the intended use of the premises will be different from the previous use), it may be advisable for a tenant to obtain a representation and warranty from the landlord in respect of the availability of the systems required and the capacity of those systems.
- Landlord’s Work: Inclusiveness and Specificity
Although many tenants negotiate certain work they expect the landlord to perform in the premises (whether that is turn-key where no tenant’s work is required, or something less), it is critical for a tenant to ensure that any landlord’s work it desires to be performed is described inclusively, in detail and with specificity. If you do not include specific details or, worse yet, a particular item of work that you expect, you should anticipate not getting it (except at your sole cost). Further, although many tenants will remember to be exhaustive in listing the landlord’s work, often tenants do not incorporate standards required for that work. If you forget to add specific standards, you may receive a low standard. If you fail to ensure that certain alterations will be in particular locations, you may not get to choose where exactly they will go. The moral here is to ensure the landlord’s work includes everything you intended, is very detailed and includes standards where applicable. Ideally a tenant (where enough leverage exists) should be able to inspect the premises and the work performed and it should be to the tenant’s reasonable satisfaction, particularly where the tenant is essentially paying for the cost of the work amortized into the rent over the term. Many tenants avoid surprises by providing the landlord with the plans and specifications it expects to be used. This can go a long way in avoiding expensive surprises.
- Special Requirements in Doing Tenant’s Work
There can be a number of factors that can affect tenant’s work and make it more expensive and/or time consuming. Are there restrictions on the days or times when work can be done and the noise level? For example, will the landlord only allow the tenant’s work or particular work to be done on weekends or outside "normal business hours" and if so, what are those normal business hours? Will you require use of some of the parking lot for equipment and vehicles while the work is being performed? You may want to ask if there is anything unusual about the building (e.g. although rare, there could be asbestos, which requires more care be taken and potentially require its removal if it must be disturbed). If you spend the few minutes considering how the work will get done and asking the landlord questions about the process and the building itself, you may be able to save yourself time and/or money by negotiating those issues, or at least have a better idea of what to expect during the process.
These are just a few of the additional issues to be considered and potentially negotiated when constructing or altering existing premises. As you can see, unwanted surprises and expense can be avoided by being diligent and specific in negotiating the terms and conditions of the offer to lease or lease surrounding construction of the premises.