In a turnkey build-out, the landlord delivers agreed improvements under a defined work letter. The tenant still needs to confirm the full budget, delivery standards, approvals, and responsibilities for changes and delays.

Pros for tenants:

Funding the Defined Scope:

  • Confirm which improvements the landlord funds and whether exclusions, tenant-requested changes, equipment, or other project costs require tenant payment. The agreed scope and cost allocation control the result.

Time Savings:

  • The landlord can coordinate design, permitting, construction, and inspections for its agreed scope. The tenant still needs to provide approvals and coordinate its own equipment, technology, and move-in requirements.

Allocation of Cost and Delivery Risk:

  • A turnkey arrangement can place responsibility for a defined scope of work on the landlord. The lease and work letter should specify that scope, delivery standards, approval process, change-order pricing, exclusions, and responsibility for delays. Confirm how tenant-requested changes and unforeseen conditions are handled before relying on a fixed build-out cost.

Cons for tenants:

Delays:

  • Construction

  • Architectural drawings

  • Labor Issues

  • Permitting

  • Supply Issues

  • Obtaining a Certificate of Occupancy

Longer Lease Term:

  • The lease term and pricing reflect the agreed improvements and negotiated allocation of costs and delays. Review that commitment alongside flexibility, occupancy costs, and the needs of the business.

  • This allows the landlord the ability to amortize the cost of the buildout over a longer period, allowing the landlord to stay competitive from a rental rate standpoint.

Tenants’ Credit Highly Scrutinized

  • Landlord will want to carefully review financial statements, such as P&L statements, credit history, and balance sheets dating back 2-3 years. The more money a landlord puts into a deal, the more scrutinized a tenant’s financials will be, as landlords aim to reduce any potential risks. There might be instances where they require a tenant sign a personal guaranty. WRA would advise our clients to avoid this arrangement. It gives the landlord the ability to seize personal assets if the company cannot fulfill its lease commitments.

Conclusion:

The original September 2023 discussion reflected construction-cost pressures at that time. For a current assignment, compare turnkey delivery with an allowance using the defined scope, current proposals, exclusions, change-order terms, and delay responsibilities.

Negotiating a build-out? It's part of every WRA relocation engagement.