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Tenant Improvements – Avoid Costs by Thinking about the Details

By:  Rick Pearson, Cresa Woodland Hills

Whether you have negotiated a TI Allowance or your landlord is going to perform the TI work based on a pre-approved scope of work, I’m 99% certain something will be overlooked that will result in added costs for you.  If you have read any of my articles in the past, you will know that I am a big proponent of doing a Landlord Build because it puts the responsibility of unforeseen conditions and problems with infrastructure on the Landlord.  However, even with a Landlord Build, the Tenant will end up paying for things that are not agreed to in the Scope of Work.  Therefore, it is important to plan ahead and think about everything that needs to be done, because if you forget them, their costs can be significant.

Light Fixtures: Be sure you understand (and see) what types of fixtures are going to be used.  Indirect LED fixtures are the most modern-looking but many landlords have not adopted standard yet.  If the LL is pulling a permit, they may be forced to upgrade the fixtures but they may be able to get by just upgrading the bulbs.  It doesn’t hurt to ask for new fixtures, or at least know what the cost is to upgrade to them.  It may make a big difference in the quality of the light and the look of your space.

Carpet Tiles: Most landlords use rolled carpet because it costs less, but carpet tiles are better if you can get them.  Besides giving you more flexibility in design and pattern, it’s less expensive and easier to replace stained or damaged areas.  Again, know what you are getting and don’t be afraid to ask for this upgrade.

Glass & Sidelights:     Glass walls for conference rooms are a nice touch that most landlords will include in a turn-key build out.  A sidelight is a panel of glass alongside the door of a private office.  It’s a great way to let natural light into the inner office, especially if you are designing a space with private offices along the entire window line. It also allows someone to look into a closed office to see if the occupant is on the phone or sleeping.   Most of the time the landlord will pay for this if it is included in the initial drawing.

Sound Proofing: Unless it is specified in the initial plan, most new walls will be built up to the ceiling grid only and will have no insulation.  If you sit in one office and hear people talking in the adjacent one, this is the type of wall you probably have.   If the ceiling is already in place, it is costly to build the walls above it, but if the ceiling is new, it doesn’t cost much more to build the walls above the grid and add insulation.  Many landlords will include sound-related things into at least some of the space, if it’s specified early.

Millwork: Upper and lower cabinets, built-in work surfaces, reception counters, and mail slots are referred to as “millwork.”  Most landlords will include six or eight feet of millwork in the kitchen or break area but nothing more.  Think about where else millwork will be needed and get it into the plan early.  If not, you will pay for it and it’s costly:  $300 per linear foot is typical.  Also, think about building trash enclosures and microwave shelves into the millwork in the kitchen so that you can have more usable counter space:  it’s an efficient upgrade with a negligible add-on cost.

Electrical / Data / AV: If you miss some of the other things on this list, you can probably still operate your business effectively.  However, correctly locating electrical receptacles and data connectivity is imperative to running your business.   Audio-Video (AV) used to be something that was only in the main conference room but more and more, it’s is being incorporated into all areas of an office space.  Using TV’s as monitors and for video conferencing–even in private offices–is now seen as a very productive communication tool.   The infrastructure for all of this needs to be carefully thought-out.  Even if you don’t have the budget to buy the equipment now, adding the conduit in the walls and floors for future needs will save a ton of money down the road.  In my experience, Phone and IT people just assume the infrastructure will be provided for them and the Landlord will just assume the IT people will deal with their own infrastructure.  Determine what you need now and what you might need in the future and try incorporating that into the design of your space.  You’ll be surprised at how much you can get the landlord to do as part of the initial build out.

Security / Access Control: Card readers are common place as a security measure but mostly used as access control only, allowing a business owner to monitor the access of employees and avoid changing locks when a disgruntled employee leaves the company.  In order for card readers to work, a low voltage wire must run down to and through the door to active/deactivate the lock.  Calling that out on the plan will often get it paid for by the landlord.   Adding it later will not only cost more, but it will certainly be on your dime.

Locking Doors: Most building standard doors don’t have locking hardware.  Determine where you need to have doors that lock with a key and have the plan reflect that hardware.  It can be as much as $500 each to replace the hardware if it needs to be added later.  Most landlord will agree to add locks on some of the doors at their cost.

Homerun: A “homerun” is a conduit that connect the telephone room in the common areas to the server room in your space.  It may only cost $1,000 or $2,000 to have your cabling company do this, but if you ask for it up front, the landlord will provide it most of the time.   Be sure you specify the correct size conduit that you need, based on the amount of wires that need to be pulled through it.

My advice is to take some time and discuss all of this information with your staff, consultants, and vendors long before you start looking for space.  Knowing all of this will make you better equipped to discuss all of this in your first meeting with the architect / space planner.   The more you can include in the plans, the better chance you will have of getting the landlord to include it in his TI package.  Be prepared for the Landlord telling you that you are responsible for paying for some of this.  In that case, request costs for each item and agree to those costs before you sign your lease.   After the ink is dry, you have no leverage.

Don’t assume your real estate broker knows all of this.  Most don’t get involved in the Tenant Improvement, short of negotiating the allowance for you, and most don’t come to the job meetings once the construction starts.  I’ve always been interested in how space was built so I try to attend most job meetings with my clients. At some point in my past, I have seen clients pay for things I did not feel was appropriate and other times I have been able to get landlords to pay for things simply because they were included in the drawings  Defining what improvements you need and including them in the plans early gives you the best chance of getting the landlord to pay for them so you don’t have to.

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