So, you’ve got the perfect location in mind, and you’re buzzing with excitement to get your lease signed, plans designed, build-out constructed, and open for business. But if you’re wondering, “What should I be looking for in a landlord work letter?” you’re in the right place!
This blog post is your go-to guide for understanding some of the top items to watch for as it relates to your architectural and engineering needs in one of the most important parts of your business—your lease negotiations. The landlord work letter is a crucial document that can make or break your lease negotiation and construction process if not scrutinized early on in the process.
For those who may be newer to constructing tenant spaces, the landlord work letter can be disorienting, especially when you are unfamiliar with the context of what can or cannot be negotiated. Yet, landlords tend to use this to their advantage, since the terms in a landlord work letter could have major cost implications if not negotiated with certainty and skill prior to signing the lease.
This is where your architecture and engineering teams can support you. The architecture and engineering teams are very familiar with landlord work letters and their impacts on the build-out, especially if you have a long-term relationship with your design team and they understand your brand. This is why it is essential to have your design team review and provide feedback on the landlord’s work letter prior to your negotiations.
The best preplanning step you can take for your project or program before you even begin looking at lease spaces is to develop your own standard work letter, which identifies all of the requirements of the project that are ideal to receive when negotiating a new lease. Your architecture and engineering design team can assist in drafting or advising on the creation of this work letter, which identifies all of the requirements of the project that are ideal to receive when negotiating a new lease.
This document can then become the basis for all future lease negotiations with landlords, and even though you might not get all the items you are requesting, you will at least know what you might be giving up and can use that as negotiating power with your Tenant Improvement (TI) allowance.
Here are the top 5 items we recommend looking out for in the work letter:
Reviewing timeframes helps ensure that there is a sufficient timeframe allowed in the lease to prepare construction documents and go through the permitting process and construction prior to rent commencement.
If the lease states that the landlord wants a review set within a certain timeframe, it is important to allow sufficient time in the lease to be able to conduct the necessary field verification, schematic design, and prepare a full construction document set for the landlord’s review. You don’t want to get penalized for not getting the landlord review set completed in time per the lease.
Reviewing for utilities will provide insight on whether all the required utilities (power, water, sewer, grease trap, and gas), depending on the type of project, are all sized and available to the site according to the needs of new build-out requirements.
Depending on the electrical meter center currently providing power to the lease space, an evaluation should be made to determine if the meter center will need to be upgraded to provide additional power to support the new build-out. If there is inadequate electrical supply, consideration will need to be made to determine if the landlord will take on the costs and coordination to pull a new service from the transformer to the lease space, provide space on the building for the new meter, and disconnect.
Potential issues with the water pressure supply and demand should be evaluated by your architecture and engineering teams, especially if multiple tenants have a “high usage” of water consumption within the building, feeding from a common water line. This would be of increased importance for a new restaurant tenant.
HVAC and Mechanical Systems:
Your architecture and engineering teams can review and advise on the HVAC and mechanical systems within the landlord’s building and identify any concerns related to the requirements of your build-out. For multi-story buildings, your design team can review if access to mechanical chases is accounted for and if there is enough available room left in the mechanical chase for the ducts that are needed for your build-out.
A review of the shell building plans can also be helpful to determine if the landlord is allowing for adequate space on the roof for rooftop equipment with acceptable clearances from other equipment, parapets, and the edge of the roof. Verification can be made to ensure the tenant space can easily exhaust out of the space and bring fresh air into the space.
If the existing HVAC system provided by the landlord is not of sufficient size, you would want to see if the landlord would supply additional units or replace the existing unit with a larger one to meet the demands of your build-out. This is a critical topic to discuss prior to signing leases because the costs for the additional or replacement units, as well as the modifications to the roof system and structure, will be costs that should be considered before signing the lease.
During those discussions, use caution and clarity when it comes to the entire scope of engineering. For example, who is providing, installing, and ducting a new landlord-provided HVAC unit (as it might be identified in a work letter)? Sometimes the landlord will provide the unit, but they are only actually paying for the cost of the unit and may be expecting the tenant to foot the bill to have it engineered, installed, and any costs associated with the rest of that process. Leave no gray areas around this topic to avoid expensive surprises.
When dealing with new construction, the landlord often provides the primary entrances and exits. But here’s the kicker: these are not just doors; they are critical elements for life safety and ADA (Americans with Disabilities Act) compliance. This concern becomes heightened when your lease space egress paths or doors exist on the landlord’s common grounds or property. In some cases, a jurisdiction may deem your tenant space non-compliant if the portion of egress that the landlord is providing is outdated or non-code-compliant in an effort to force the landlord into updating common areas. So, what should you be looking out for?
Life Safety Codes
Firstly, life safety codes dictate the minimum requirements for safe egress, meaning how people will exit the building in an emergency. For example, suppose you are planning to open a high-capacity venue like a theater or a restaurant. In that case, you will need to ensure that the exits can accommodate a large number of people evacuating simultaneously. For example, suppose the landlord provides two exits, but your architectural team’s assessment shows that a third emergency exit is needed, given your expected foot traffic. This is something you’ll want to try negotiating before signing the lease.
ADA compliance ensures that entrances and exits are accessible to everyone, including individuals with disabilities. This could mean wider doors, ramps instead of steps, and accessible handles. For example, if the landlord’s provided entrance includes steps but no ramp, you’ll need to discuss adding a ramp or an alternative accessible entrance to meet ADA requirements.
Size and Location Adjustments
Lastly, the size and location of these entrances and exits might need to be adjusted based on your specific tenant layout and equipment requirements. For example, let’s say you are opening a gym and you have large equipment that needs to be moved in and out. You will need to ensure that the doors are wide enough to accommodate this. Or perhaps your retail layout includes a cashier station near the entrance; you will want to ensure that this doesn’t block or impede any exits.
Mastering the Work Letter for Informed Lease Negotiations
You’ve journeyed with us from blueprint to build-out, and now you’re armed with the knowledge to tackle that landlord work letter like a pro. Remember, this document is more than just a formality; it’s the architecture and engineering roadmap to your dream space.
Your design team is your best ally in this venture, helping you navigate the complexities of timeframes, utilities, electrical services, water pressure, HVAC systems, and life-safety codes. They’ll ensure that your lease space isn’t just beautiful but also functional, safe, and compliant with all necessary regulations.
So, as you prepare to sign that lease and make your vision a reality, don’t overlook the details. Scrutinize that work letter, negotiate wisely, and build a space that’s not just a place to do business, but a place where your business can thrive. Here’s to opening new doors—both literally and metaphorically—in your next big venture!