Minding Business

Commercial Property Tenants: Why Controlling and Managing Build Outs is Key

Posted: March 08, 2018 by Anna Jotham

It’s negotiation time. You’ve searched for the ideal commercial property for your business. You’re delighted by the location, the traffic, the demographics of the neighborhood and the space. Of course, some work will have to be done to meet your specific needs for the business, but that’s to be expected. Now you just need to find a way to control and manage the build outs for your specific use.

As a potential tenant of a commercial property, it’s in your best interest to negotiate your tenant improvement allowance as well as maintain some control over the construction process. After all, you know best what you need for your business, so controlling and managing the build out process is an important step toward the success of your venture. And if the market is soft, your chances of cutting a sweet deal are better, according to 42floors.com. But where to get started? 

Negotiating a Tenant Improvement Allowance

Tenants typically negotiate one of two structures for tenant improvement allowances: the turnkey build out, where the landlord covers the cost of the build out and the agreed upon construction; or the stated dollar amount, where the landlord foots a specific dollar amount for the tenant to build-out the space. In either case, it goes without saying that having an accurate estimate of the cost of the improvements is essential to making sure you don’t encounter any unwelcome surprises after the deal is inked.

Many tenants prefer to have no out-of-pocket costs for the build out, and according to www.coydavidson.com, many will be tempted to request a turnkey build out for that reason. But the issue can be more complex than at first glance. In reality, it’s more nuanced: most tenants should strive to keep their out-of-pocket costs low while maximizing the value of their improvement allowance. 

Why does that matter? Landlords can build contingency costs into the agreement, and should the build out come in lower than that, the landlord makes a profit on the deal. So there is an economic incentive for the landlord to find efficiencies, even if they aren’t in the tenant’s best interest. Maintaining some control of the construction process can ensure a tenant maximizes the bang for their improvement allowance bucks that they’ve so keenly negotiated. 

The Benefits of Having Control and Oversight of Build Outs

Having control of the build out allows tenants to monitor progress of the build out, to make certain the project is done on time and you don’t incur any unforeseen costs due to delays. It also allows the tenant to put the commercial construction project out for bid to score the best deal. More, you’ll never have to wonder if your best interests are at the heart of the decision-making process, because you’ll be guiding those decisions.

Your Realtor, An Expert on Your Side

Your real estate partner can help as you develop a strategy for negotiating terms of your agreement, including the tenant allowance and management and oversight of the build outs. As a business professional, it’s both your right and in your best interest to lock in the deal that will not only control your costs in the short term, but secure your future success, as well. 

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