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Leasing Basics and Negotiations
Courtesy of the Nonprofit Finance Fund

5. WHAT IF THE SPACE NEEDS RENOVATION?

Some landlords will offer rents including a certain amount for renovation; others will amortize the cost of work over the lease-term. In some cases it will be up to the tenant to plan, execute and finance the renovation.

"As is" (Construction by the Tenant)
The lease may offer the space in "as is" condition but may provide for the landlord's approval of all plans for alterations. Freight elevator hourly costs, time usage for delivery and removal of material, and the tenant's right to choose a contractor should be discussed with the landlord.

Building standard installation (Construction by the Landlord)
Landlords will provide or reimburse the cost of a building standard installation. The cost of these improvements is spread out over the length of the lease. For example, if a landlord spends $50,000, he will then charge you that plus an interest factor (to cover his financing costs), thereby increasing your rent. Substantial tenants can generally negotiate for an installation of higher quality than building standard. In any case, the amount and type of tenant work contributed by the landlord should be negotiated and understood. The negotiated agreement for this work is called a workletter, which is typically a detailed description of the work from the landlord to the tenant.

The tenant should require the landlord to do all the construction in accordance with precise plans and specifications attached to the lease. It is generally best to hire an architect to prepare and review the plans, in order to safeguard against errors and costly changes. The plans and specifications should be detailed enough to allow you to determine the cost of the work and how it will be calculated. Prior to signing your lease, you should negotiate with your landlord how you will receive credits, when work is complete, for any unused money allocated for the improvements.

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