‘When Do I Get My Space?’ A Brief Tenant Improvements Guide for Tenants

by Pepper Hamilton LLP

You’ve had enough of building tours, negotiating lease terms, conference calls and your inbox filling up with PDFs of nearly final improvement specifications and space plans.  You’ve finally signed a shiny new lease for space that you love (or that is adequate), signed off on the final plans, specifications and finishes – and your very next question to your landlord or your lawyer or your project manager is, “When do I get my space?”

It is a very good question, and you may receive the typical lawyer answer of “It depends,” which unfortunately in this case, at least, is the right answer.  Keep the following few guidelines in mind as you negotiate that new lease, and it’s more likely you’ll be up and running in that new space in no time.

First, consider whether the space needs to be improved or is acceptable for your use in its present condition or with just a few minor fix-ups.  If the space is fine as is, then landlord should deliver possession of the space to you upon execution of the lease or within a time period thereafter or on a specific date.

If your space needs just a few minor fix-ups (maybe a new coat of paint or new carpeting) and you’ve negotiated to have landlord take care of these (which many landlords will do without an issue), then your lease should state that landlord will do these minor items by a certain date or within a certain time period.  Sometimes, if these items can be done while you are using the space, landlord may deliver possession of the space to you right after execution of the lease and then take care of these items after you are settled in.

If your space needs more than minor TLC, then when you first start talking lease terms with landlord, figure out who is going to do the necessary improvements, and be as specific as you can about what you would like done.  Otherwise you might find yourself asking for changes to the plans during the construction process. While landlords do not typically have to agree to your requested changes, if they do agree, the cost of the changes will usually be charged to you (or at least any excess costs), will likely delay your anticipated delivery date, and may also trigger an obligation to start paying rent before you otherwise have the space.

If your organization or company does not have someone who is fairly experienced in this type of construction project, it may be better to have landlord do the work.  In that case, the cost of the work is usually amortized over the term of your lease (possibly with interest) and added to whatever base rent amount would have been agreed upon if no improvements were made.  If landlord is performing this work, make sure that the commencement date of the term of your lease is described as whatever date landlord completes this work and turns over the space to you.  It should not be a date certain, because you are not in control of the work and do not want to start paying rent or performing other obligations before you have possession of your finished space and can operate there.

If you want to improve the space yourself, you may want a tenant improvement allowance from landlord to pay for some or all of the cost of the improvements.  A tenant improvement allowance is money (sometimes calculated on a per square foot basis) that landlord pays to a tenant to reimburse it for improvements that the tenant is making to its space.  Rest assured that this allowance is figured into your base rent, so it is not free money (and consider this when deciding what improvements you want).  If you go this route, a specific date likely will be set forth in your lease when the term of the lease commences and you have to start paying rent.  This makes sense, because in this scenario you are in control of the buildout process, and must be careful in negotiating enough time (with some cushion if you can) for completion of the work so you don’t start paying rent before you are doing business in the space.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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