Build-Out Allowance

Build-Out Allowances Define Who Controls Your Space's Construction

A build-out allowance is money provided by the landlord to construct your space. The critical question: who manages the construction? In a 'turnkey' build-out, the landlord hires the contractor, manages the project, and delivers a finished space to you. In a 'tenant build-out' model, the tenant controls the construction process and the landlord provides a cash allowance to reimburse eligible costs. Turnkey gives you less control; tenant-directed gives you more. The right model depends on whether the landlord has a standard office or retail product that works for you, or whether your needs are specific enough to require direct control over the buildout.

Turnkey Build-Outs Look Simple But Can Create Problems

A landlord who promises to deliver 'a completed office suite per the attached floor plan' at their cost sounds straightforward. The risk: the landlord controls material quality, construction timeline, and finish standards. 'Standard office' finishes might mean commercial carpet tile instead of the hardwood you wanted, fluorescent lighting instead of LED panels, and hollow-core doors instead of solid. If the lease specifies 'building standard' finishes, you have no right to upgrades without paying above the TIA. And if the construction runs late — the landlord's contractor delays and your space isn't ready on the lease commencement date — you may still owe rent from commencement even if you can't move in.

Construction Delays Are One of the Most Common Build-Out Disputes

Leases typically specify a 'commencement date' — the date from which rent starts. If the commencement date is contingent on completion of the landlord's build-out, late construction means delayed rent start, which is actually good for you. But if the commencement date is a fixed calendar date regardless of construction status, you may be paying rent on unfinished space. Negotiate a 'commencement date contingency' — the commencement date is the later of the specified date or the date the landlord delivers the space 'substantially complete,' with a definition of substantial completion and a punch-list completion process for remaining items.

Specification Approval Rights Protect You From Low-Quality Build-Outs

Whether the build-out is turnkey or tenant-directed, secure your right to approve the final construction documents before construction begins. This includes: architectural drawings, finishes schedule (which materials are used for floors, walls, ceiling, lighting), mechanical and electrical specifications (HVAC capacity, electrical circuit layout), and plumbing (if your space has any kitchen or bathroom components). Approve in writing before construction starts — changes after construction begins cost significantly more than changes to plans. A clause that allows you to approve 'construction drawings prior to permit application' is your key protection.

The Allowance Amount Determines Your Buildout Quality

Market build-out allowances vary dramatically by market, property class, and lease term length. In a Class A San Francisco office building, $120–$150/sq ft is typical for a 5-year lease. In a secondary market suburban office building, $40–$60/sq ft is more common. For retail in an urban corridor, $80–$120/sq ft is standard for longer-term leases. These aren't arbitrary — they reflect what it actually costs to deliver a finished commercial space. Before negotiating, get real construction cost estimates from an independent contractor so you know whether the landlord's offered allowance covers what you actually need. An allowance $30/sq ft short of actual build-out cost is $150,000 out-of-pocket for a 5,000 sq ft space.

Allowance Disbursement and Inspection Rights Are as Important as the Amount

How and when the allowance is paid matters as much as the total amount. Standard disbursement: draw schedule aligned with construction milestones (20% upon permit issuance, 50% upon rough inspections passing, 25% upon substantial completion, 5% retained until final lien waivers). Require the landlord to disburse within 15 business days of each milestone, with an automatic interest penalty if they're late. Also require that any disputed draw be paid in the undisputed amount, with the dispute resolved separately — a landlord who disputes a small portion of a draw shouldn't be able to hold the entire draw hostage.