Experts share top costly Tenant Improvement Work Letter Oversights

buttonA tenant (who didn’t use a project manager) once told me of an argument with his landlord shortly after move-in to his newly constructed office.  He went to lower the window shades….but there were no shades to lower. When he questioned the landlord who provided a turnkey build out why there were no shades installed, the response was “It wasn’t in the work letter.”

What the tenant thought was part of the building standard turnkey build out was in fact language intentionally missing from the work letter and became a costly oversight for them.

The Tenant Improvement Work Letter (TI) is a rider to the lease that outlines physical improvements the landlord will be performing to your space.  As the legal terms of the lease are negotiable, so too are the business terms of the TI Work Letter.  Like a game of cat and mouse, TI negotiation is about how much construction the tenant can gain at the landlord’s expense or how little the landlord gives up as part of the construction allowance and improvements.

I asked my colleagues in the Owner’s Representative LinkedIn Discussion Group to contribute some of their head scratching items they report are routinely missing during work letter review:

From Richard Neuman, JLL, New York
– No Window Treatments
– No water lines or vacuum breakers for Coffee/Water because the machines were never mentioned
– Missing floor chops for conference room power/data
– Missing wall-mounted Power/Data for Audio Visual (i.e., conference rooms)
– No plywood blocking for wall-mounted monitors

Mark Perelli, Independent Owner’s Representative, Greater Los Angeles area
– Adequate and appropriate vehicle parking for employees and customers
– Accessibility for employees and customers relative to ADA compliance

Richard Miller, Construction-Engineering Consultant, Las Vegas
– Electrical service available including max load, voltage, phase amps
– Computer Room: Loading, UPS system, and pre-action sprinkler system
– Door hardware for security

Brian Bott, Construction Manager, Hawaiian Islands
– Utilities passing through the space should be identified at the entry AND exit points
– When a tenant departs, un-needed lined should be removed
– Pre and post move inspections should include above ceiling inspections
– Access panels (usually in my experience there should be more and they should be larger), valve tagging, cleanouts
– All new panel boxes should be twice as large as they need for current breaker size. Oh, and think about space for service loops
– And knock out walls for increasing single to double doors more easily

George Crawford, Senior Director of Construction at The Howard Hughes Corporation, Houston, TX area
– Building insulation
– Walk pads to roof equipment
– Labeling and back door signs
– Fire stopping
– Trims to common area
– Underlayment gaps checked
– Water sub meters and electric sub meter/ breakers are usually identified but details or understood.

Patrick McGarry, Civic Projects Manager at City of Carlsbad, San Diego, CA 
– Outlet does not match power requirements for special equipment (voltage, amps, and plug type)

Denis Delehanty, RMI LLC Construction & Project Management, Purcellville, VA
– Gutters dumping into small landlocked areas of dirt
– Conduit under the sidewalks and driveways missing for storm water runoff
– Water and electrical for sprinkler installation
– Missing conduit for data to the site, conduit for communications to remote security gates or service buildings
– Missing holes/conduit in the floors to run data between floors for a single client
– Missing signage specification
– Missing cable trays in ceilings

What makes the TI Work Letter unique from the lease is that you need to understand the nuances of construction versus the needs analysis that your project manager who you hopefully retained has developed.

Most tenants lack knowledge and experience to perform the analysis on their own.  This is where your broker and project manager are partners who play a crucial role in providing you guidance and direction to negotiate the best TI Work Letter that minimizes your exposure and out-of-pocket costs.

The more you understand your space and needs in advance (from a construction point of view), the better chances your team has to negotiate a favorable TI. Like any negotiation, the more you include now, the less money you will spend in future costly change orders.

Richard Neuman is Vice President in JLL’s Northeast region Project and Development Services group. The views expressed in this blog are his own and do not necessarily represent the views of his employer.

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