Once you have designed your space, bid out the work, and secured funding it is time to document everything within the lease. This is where the work letter comes into play. The space plan is the raw material for the exhibit that goes into the lease document. The work letter isn’t just an exhibit though, it is part of the legal contract that has all of the usual “what if” that need to be contemplated, contingencies, and remedies. Remember, lease documents cover who is responsible for what over time.
The most asked about part of the work letter has to do with what happens if there are delays in the completion of the construction. In the first scenario, when you are performing your construction, then there is less to be worried about from this standpoint. For example, if you get three months of free rent from the landlord, in lieu of an allowance, and in three months, you have not finished construction, then you start paying rent on space that you are not using yet. The first alternative approach we suggest is to structure the rent commencement date 30 days after the substantial completion of tenant improvements. Don’t expect your landlord to allow this without having some sort of drop-dead date to protect themselves. Even then, such a drop-dead date is usually further in the future than the amount of time that the landlord would have given you if you just called it free rent. Another tactic would be to have your commencement date fixed so that if you are able to complete your construction early, you can enjoy some of the excess construction time as free rent.
When it comes to the landlord performing construction, there is usually a targeted completion date. What happens if there is a delay all has to do with what caused the delay and how controllable it was. The cause of delay can be the weather, city regulations, disruption in the supply of materials and labor, change orders, and countless other influences. Each delay has its own unique consideration. In general, if something outside the landlord’s control causes the delay, then the landlord is not penalized for said delay.
The most commonly agreed-upon remedy is to delay the start of the lease commencement to match when the space eventually comes available. If the delay causes you to incur costs though, like having to holdover in your current space, month to month, and pay double rent, or delays your relocation team, tensions start to increase rapidly. We usually negotiate a drop-dead date within 45-60 days from the estimated completion date. That way if construction is incomplete, the tenant can terminate the lease.
Rarely is terminating the lease though in the tenant’s best interest because you will have already sunk considerable costs into the relocation endeavor. Terminating the deal is equally as bad, if not worse, for the landlord because they have spent money on construction and have no tenant to pay it back. We negotiate this lease termination more as a last resort protection than a practical exit.
We can always obtain a better result by improving project management, contingency planning, and increased communication. Construction delay risk is another opportunity for an experienced team member, broker, or project manager to save you from considerable disruption.
The city will be one immovable force within the process in the beginning, middle and end. In the beginning, the city is responsible for the review and approval of construction drawings and building permits.
The city usually gets 30 days from the receipt of a construction application to verify that all of the appropriate documents are received, and the application is complete. If there are missing documents or additional information needed, they will notify you, wait to hear back from you, then start the 30-day clock over again. Most city planners and folks at the building department can be accessible in person at the counter of their department at City Hall. They will be upfront about their opinion, so if you put in your time early with them, it will help ensure that you are only submitting your application once.
The city inspector will be the main city official to visit your job. Usually, there are city inspections before the interior walls are closed so that they can inspect the electrical work within the walls. You will get a final walk-through and inspection before getting your official sign off and occupancy certificate. You will also have a city inspector look at and sign off on your racking installation as well. Most people, once they have dealt with the city inspector a few times, whether they had good or less than stellar experiences, at least feel like they have learned what to expect. They will take this into consideration with them the next time they think about more construction in their existing building or the prospects of moving into a new building.
City planners mean well and do valuable work, but they are not entrepreneurs. They are habitually overworked and underpaid, understaffed, closed for lunch, and closed every other Friday. They don’t answer their incoming phones and only sometimes reply to voicemails the same day. That means that your team will have to cater to the planning department to make sure everything goes smoothly. Going to the city in person is always helpful but time intensive. Leverage your team here.
I have found that the right architect will have relationships with the people in the zoning, planning, and building departments and will expedite your efforts more than any other person. It is helpful to communicate with your architect early and often to understand the city’s current workflow and backlog. This will give you a more accurate time estimate for your construction timeline.