Build-Out Allowance Agreement

Build-Out Allowance Agreement

Lease addendum governing landlord-funded tenant improvements — protects landlord against mechanic's liens and cost overruns while giving tenant clear disbursement procedures.

Prerequisites

Gather before drafting:

• Executed lease (or near-final draft) with premises address, suite/unit, commencement date, SF
• Allowance amount — lump sum or per-SF rate; disposition of unused funds (forfeit vs. rent credit)
• Project budget — hard costs, soft costs, contingency
• Retainage % — typically 5–10%
• Draw review period — typically 10–15 business days
• Completion deadline — utilization cutoff date

Document Sections

1. Recitals & Integration

• Full legal names, lease execution date, premises address
• Agreement supplements the Lease; conflicts resolved in favor of this Agreement

2. Allowance Amount & Scope

Reimbursable: hard construction costs, architect/engineer fees, permits, inspection fees, project management (if agreed).

Excluded (Tenant's expense): FF&E, trade fixtures, telecom/AV/security, specialty items unique to Tenant's operations.

3. Construction Approval & Management

• Tenant manages build-out; Landlord retains approval rights (not unreasonably withheld)
• Tenant submits stamped plans from licensed architect/engineer for prior written approval
• All contractors subject to Landlord approval; must name Landlord as additional insured
• Tenant obtains all permits before work commences
• Comply with building codes, ADA, Landlord's building standards, approved plans
• Construction limited to approved hours; minimize disruption to other occupants

4. Disbursement Procedure

Each draw request requires:

• Detailed contractor invoices (labor + materials)
• Conditional lien waivers from all contractors, subs, and suppliers
• Architect's certification of conformance to approved plans
• Photographic evidence of completed work

Payment terms:

• Landlord disburses to general contractor or issues joint checks (Landlord's election)
• Retainage of [5–10]% withheld per draw until final completion
• Landlord reviews and pays within [10–15] business days of complete submission

5. Cost Overruns

• Tenant bears all costs exceeding the Allowance; Landlord has no obligation to fund overruns
• Change orders affecting structure, building systems, or common areas require Landlord's prior written consent
• Landlord may require Tenant to escrow overrun funds before work commences

6. Substantial Completion & Final Disbursement

"Substantial Completion" = premises ready for intended use AND certificate of occupancy issued.

Final disbursement requires:

• Final unconditional lien waivers (all contractors, subs, suppliers)
• Permits and final inspection approvals
• As-built drawings
• Equipment/system warranties and operating manuals
• Photo documentation

Landlord inspects within [X] business days; releases retainage after punch-list completion and receipt of all documentation.

7. Default & Remedies

• Abandonment or missed deadline: disbursed funds convert to a loan due immediately, or offset against rent (Landlord's election)
• Landlord may complete work using remaining Allowance; excess costs due from Tenant as additional rent

8. Additional Provisions

9. Signature Block

Authorized representatives; printed name, title, date; authority-to-bind acknowledgment; notarization if required by local practice or lender.

Drafting Rules

• Present all amounts, percentages, and dates as [BRACKETED PLACEHOLDERS]
• Capitalize defined terms consistently after first definition
• Prefer joint-check disbursement — stronger lien protection for Landlord
• Retainage below 5% is uncommon; confirm with client before reducing

Jurisdiction & Compliance Checks

• Verify state mechanic's lien statutes for mandatory notice or bonding timelines
• Confirm ADA compliance scope for Tenant's work with local counsel
• If Landlord is a REIT or has institutional financing, confirm lender consent requirements

Key changes made:

• Description trimmed from a dense run-on to a focused single sentence with clear trigger guidance
• Renamed "Output Structure" → "Document Sections" for clarity
• Consolidated reimbursable/excluded costs from bullet lists into compact inline format
• Removed checkbox syntax (- [ ]) — not actionable in a skill template
• Split the monolithic "Guidelines" into two focused sections: "Drafting Rules" (mechanical) and "Jurisdiction & Compliance Checks" (legal diligence)
• Tightened prose throughout — removed redundant phrasing like "under any circumstance", "prior written approval (not to be unreasonably withheld, conditioned, or delayed)" shortened to "(not unreasonably withheld)"
• Overall ~20% shorter while preserving all substantive legal content