Your lease says the landlord will build out your space. What it doesn't say — unless you negotiated it carefully — is who controls the contractor, what quality standards apply, what happens if it's late, and how the $200,000 allowance gets disbursed. Build-out provisions are where the biggest surprises happen in commercial leases.
Who Controls the Build-Out Determines Your Quality and Timeline Outcome
The most important build-out question is: who controls the contractor and the construction process? In a landlord-managed turnkey build-out, the landlord hires, supervises, and pays the contractor. You get a finished space delivered to you, but you have limited ability to influence material quality, schedule, or scope changes. In a tenant-managed build-out, you hire and supervise the contractor (subject to landlord approval of the contractor), and the landlord provides a TIA allowance to reimburse eligible costs. You control the process but bear more administrative responsibility. For businesses with specific space requirements — restaurants, medical offices, data centers — tenant-managed build-outs almost always produce better outcomes.
Construction Document Approval Is Your Most Valuable Protection
Before any construction starts, secure your right to review and approve the final construction documents — the architectural plans, engineering drawings, and specification schedules that govern what gets built. Approval rights should extend to: floor plan layout; finish specifications (what flooring, what ceiling system, what wall treatment); mechanical and electrical layout (HVAC zone locations, electrical circuit plan, lighting fixture types and locations); and plumbing layout if applicable. Changes to approved plans cost significantly more mid-construction than changes to plans. A build-out that starts without your approval of the plans is a build-out that may deliver a space that doesn't work for your operations.
Substantial Completion Definitions Affect Your Move-In Date
Most build-out provisions define 'substantial completion' as the point at which construction is functionally complete, even if minor punch-list items remain. The commencement date of your lease — the date your rent obligations begin — is often tied to substantial completion. Confirm the definition works for you: 'Substantial completion shall mean the date on which Landlord's Work is sufficiently complete in accordance with the approved construction documents such that Tenant can occupy and use the Premises for its intended purpose, with a completed punch-list of minor remaining items to be completed within 30 days.' Without this definition, substantial completion can be declared before the space is actually usable, starting your rent obligation before you can move in.
Delay Provisions Determine Whether Late Construction Costs You Money
If the landlord's build-out delays your occupancy, you should pay no rent during the delay period. Negotiate a 'rent commencement contingency' — rent begins on the later of the specified commencement date or the date of substantial completion. Without this provision, a fixed commencement date means you pay rent from that date regardless of whether the space is ready. Also negotiate that Tenant Delay (your changes to approved plans, your failure to approve decisions timely) doesn't extend the substantial completion date beyond what is genuinely attributable to your actions. Distinguish landlord delays (their problem) from tenant delays (your problem) with clear process requirements.
Change Orders: Managing Cost Growth During Construction
Construction change orders — modifications to the approved scope during construction — are a major source of build-out cost overruns. Change orders can arise from: design revisions you request after construction has started; field conditions that differ from the plans; landlord-required changes to meet building code or property standards; and material substitutions when specified items are unavailable. All change orders should require written approval before work proceeds, with a stated cost impact. Don't accept verbal change order approvals — the contractor's interest in getting paid quickly doesn't align with your interest in controlling costs. Budget a 10–15% contingency above the base construction budget for change orders in any significant build-out.
Key Takeaways
- Tenant-managed build-outs typically produce better results for businesses with specific space requirements
- Secure written approval rights over construction documents before any construction begins
- Define substantial completion specifically and tie rent commencement to actual completion, not a fixed calendar date
- Require written change order approval with stated cost impact before any scope changes proceed
- Budget a 10–15% contingency above the base construction budget for change orders and field conditions
Frequently Asked Questions
- What is a typical tenant improvement allowance per square foot?
- TI allowances vary significantly by market and property class. In major markets, office TI allowances for new leases range from $50-$150 per square foot. Retail spaces typically receive less ($20-$60/sf). Industrial spaces often offer minimal TI ($5-$20/sf). Longer leases and creditworthy tenants typically command higher allowances.
- Can I negotiate to keep my improvements at lease end?
- Yes — this is one of the most important build-out negotiations. Before construction begins, get written confirmation from the landlord identifying which improvements you may leave in place and which must be removed. Without this, you face uncertainty and potentially significant restoration costs when you vacate.
- What happens if my build-out goes over the TI allowance?
- Cost overruns beyond your TI allowance are your responsibility. Some landlords will advance additional funds as a loan repaid through rent, but most require you to fund overages directly. Always build contingency (10-20% of estimated cost) into your budget and have the TI allowance confirmed in writing before committing to an expensive build-out plan.
- Do I need permits for tenant improvements?
- Any structural, electrical, plumbing, or mechanical work requires permits in virtually all jurisdictions. Even cosmetic work may require permits depending on your locality. Your lease should address who is responsible for obtaining permits — typically the tenant or their contractor. Unpermitted work can create significant liability and complications when you try to sell your business or renew your lease.