So you have just signed your commercial real estate lease. Now What? More than likely the layout, floors, walls, etc need to be modified or updated so your next step is to hire a contractor to have it remodeled or finished out. No matter if you are leasing warehouse space, office space, medical office space, or retail space you need to make sure the contract includes all the details about what the contractor will and will not do. If the landlord is managing the scope of work then you need to make sure your commercial lease contract includes a work letter that gives specific details about the timing, what tenant finish out and costs the landlord/lessor is responsible for and what work and costs you are responsible for. You also want to have a clear understanding of the timing it will take to complete the tenant finish out from both the contractor and landlord.
Steps to Commercial Real Estate Remodeling & Tenant Finish-Outs Done Right
- Get in writing how and what condition the landlord is going to deliver the space.
- Know what improvements the landlord is going to make AND pay for.
- Know exactly how much of a tenant improvement allowance the landlord is giving and what you will be allowed to use the money for
- Know what the city will require from a permiting, architectural, and engineering perspective and get bids on those. A good contractor will be able to guide you as well however don’t only rely on them.
- Get at least 2-3 construction bids so you know exactly how much the improvements will cost.
- Don’t always go with the lowest bid. Low bidders are often in over their head, do crappy work, or miss important deadlines.
- Make sure the contractor is experienced finishing out commercial real estate spaces and specializes in what you need (office, medical, retail, or warehouse space).
- If dealing directly with a contractor be sure the contract includes their name, phone, address, and construction start and completion dates.
- Be sure the finish out contract includes a detailed list of materials including sizes, colors, brand names, model #’s, and products.
- Make sure everything you want done is included in the scope of work. If you do not see an item on the contract assume that it will not be done.
- Carefully review the design plans and approve them in writing before any work is started.
- Make sure you understand how long the tenant improvements will take and that you have the time to wait.
- Create some sort of contingency plan in the event the improvements are not completed by your expected completion date.
- Be familiar with the Right of Rescission which is a federal law that requires a contractor to give you written notice of your right to cancel within 3 days of signing a contract as long as it was executed at your home or place of business.
- Make sure you understand the financial requirements and terms of the contract. The total costs, payment schedule, cancellation penalties, and construction timelines should be very clear.
- Make sure all warranties covering the materials and labor are in writing, including the time period and which party will honor the warranty.
- It’s always a good idea to include some sort of arbitration clause in the event you, the contractor, and/or the landlord disagree on something. Arbitration clauses can help to resolve issues without costly litigation.
- Before starting the commercial remodel or finish out construction be sure to walk the space with the contractor and landlord AND thoroughly review the scope of work line by line to make sure EVERYONE is on the same page.
- Before signing the contract review and read the entire thing and be certain that you understand who is doing & paying for what before signing.
- Never sign a contract that is not complete and always get a copy of the final agreement.
- Schedule a walk through of the space with the landlord, contractor and your team to make sure all the work was completed as agreed upon. Create a punchlist of items that need to be completed before signing the commencement date agreement.
If you are renting office space, retail, or warehouse space and have any questions about the commercial real estate construction, remodeling, or tenant finish out process don’t hesitate to contact us at 512-861-0525
