While many lease provisions never come to light for tenants, there is one that all tenants face after the lease is signed: the Tenant Improvement Provision a/k/a “Work Letter”. Given the amount of dollars at stake and its operational significance to the tenant, it requires the utmost attention.
Under the Allowance Approach, the tenant is allotted a cash allowance from the landlord for construction and related costs. To the extent the total costs are less than the allowance, and if properly negotiated, the tenant retains the savings. On the flip side, if the costs exceed the allowance, then the tenant bears those excess costs. Outlined below are the pros and cons to this approach, common pitfalls and strategy to successfully implement.
As the name implies under this approach, the landlord – at its sole cost – is responsible for all elements of construction based upon an agreed to scope of work. Many tenants are attracted to the simplicity of this approach, but if not properly structured and implemented can lead to unwanted financial surprises, delays as well as a space that is not constructed to meet their needs. Outlined below are the pros and cons to this approach, common pitfalls and strategy to successfully implement.