Today, we step out of the four corners of the lease and discuss one of its most important aspect: Tenant Improvements (TIs), and the best practices to make sure these are delivered completely on time and on budget.

Your broker co-author completed two recent transactions that involved extensive tenant improvements. Several lessons learned are worth sharing that could help you and your clients ensure the delivery of all tenant improvements as promised.

Large Industrial Warehouse Lease:

We were privileged to represent a multinational firm on a 252,000 square-foot warehouse lease, which included significant tenant improvements: a substantial portion of the warehouse needed a drop ceiling with ESFR sprinklers to comply with local fire code; a 7,000 square-foot office build out; and other improvements. The transaction occurred during the early stages of the COVID-19 pandemic, so all parties were working remotely and did not have the luxury of on-site meetings. Accordingly, a team of up to 15 people, including the developer, builder, architect, and brokers, met weekly online. Drawings were reviewed, manipulated, and revised on the fly in these virtual meetings. Our client’s North American warehouse manager was our principal contact. Fortunately, this was not his first rodeo. As a result, all parties worked seamlessly to ensure that all revisions were made in a timely manner so that the actual buildout commenced well in advance of potential material delays and supply chain shortages. The build-out was actually completed one month ahead of schedule and allowed our client to achieve a phased move-in and experienced no down time in the relocation.

Small Downtown Office Lease:

While representing a law firm in the downtown area, we negotiated a long-term lease on raw office space in an older high-rise building. Our client’s last lease was executed eight years ago and involved a partially built-out space. Accordingly, we recommended and sourced to our client several owner representatives/project managers to oversee the buildout process. A project manager (PM) was engaged and walked our client patiently through each step of the process. This included a full review of all drawings and specifications in advance of construction. Though lacking construction experience or background, one of the client’s attorneys took charge of the process and interfaced regularly with the PM and landlord’s construction team. Our role was the facilitation of ongoing communication between our client and their PM, and the landlord’s property manager, architect, and contractor throughout the build-out. When the city delayed the permitting process and threatened the timely delivery of the space, both teams determined workarounds to save time when construction finally began. The end result: our client moved into a newly built office for its growing law practice one week before the lease expired at their previous space.

As evidenced by the above two transactions, many factors need to be considered in order for a project to be completed successfully. Utilizing past expertise and remaining adaptable can be vital. Moreover, as long as the parties communicate effectively often and work together as a cohesive team, the tenant improvement project should meet or possibly exceed the client’s expectations.