An important element of business space lease negotiations is the improvements permitted by the landlord. These are known as build-outs. They cover any form of retrofit for a rented space to meet a tenant’s particular requirements. One of the initial questions prospective tenants ask a landlord is about their build-out policy. They also want to know the costs involved. A tenant will also want to know what type of improvements are permitted. Landlords know a tenant’s costs for any renovation will be a major factor during the lease negotiation process.
Reasons For An Office Build-Out
There are some people in business who think when you rent office space, you take it as is and are not able to make any changes. In many situations, this is not the case. There are a number of commercial tenants who will lease office space only if certain changes are made before they move in or during the time they are leasing it. The reason could be to meet industry requirements, to make the space bigger or make it into different sized sections and more.
A turnkey build-out is one where the tenant simply moves into an office space that has already been customized to meet their needs. This type of build-out is usually funded and performed by the landlord. The changes are done to meet a tenant’s specifications. All of this is will usually be agreed upon when discussing terms of a lease. Turnkey improvements will often include such things as new light fixtures, closets, electrical outlets, new walls and more. In this situation, a tenant will get to choose the office’s paint colors as well as carpet and more.
With tenant build-outs, it is the tenant who is handling all of the changes to an office space. They may do everything from hire an architect, contractor, buy furnishings, materials they want to be used and more. The budget for this will be determined during the negotiations for the lease. Both parties must agree on a dollar amount per square foot that will be spent. Before negotiating this, a prospective tenant needs to have an accurate cost projection and provide details of the intended office space changes.
Paying The Office Build-Out
If a landlord wants a tenant, they may offer to pay all of the costs of a build-out. This often happens when the terms for the lease are at least three years or longer. It is possible for a landlord to agree to a build-out but not be willing to pay the costs involved. In this case, a tenant may be willing to pay for the costs of the build-out but ask their rent be reduced for a specific length of time.
It is essential an office build-out project be completed on time. A tenant will usually have a very strict date they must vacate their old office space. If the new office space is not ready to accommodate their needs, it could result in added expense and inconvenience. It is estimated that the design process for an office build-out could take approximately four months. Choosing a contractor could take a month and the time to finish the project could last as long as three months.
The cost for an office build-out will vary widely. It will depend on the real estate market, the age of the building, any previous use of the building and more. A new building will be more expensive than an older building. Higher quality finishings increase the amount per square foot. There are also specialty build-outs involving medical offices, laboratories that are very expensive. In many cases, the costs can be determined by consulting with an architect, contractor or both.