Tenant Improvement Work Letter

Tenant Improvement Work Letter

Draft a binding Work Letter exhibit governing design, approval, construction, and payment of tenant improvements under a commercial lease.

Prerequisites

Collect before drafting:

1. Executed or draft lease — parties, premises, permitted use, rent commencement mechanics
2. TI allowance terms — total amount, per-RSF calculation, eligible cost categories
3. Base building scope — Landlord deliverables vs. TI Work
4. Building rules — contractor requirements, insurance minimums, working-hour restrictions
5. Target completion date — and relationship to rent commencement

Document Sections

1. Header & Recitals

• Title as "WORK LETTER" or "TENANT IMPROVEMENT WORK LETTER" — label as Exhibit to Lease
• Reference lease date, parties (full legal names), premises
• State incorporation into Lease; specify which document controls on conflict
• Align effective date with lease execution

2. Definitions

Define at minimum:

3. Design & Approval Process

Four-phase flow:

1. Preliminary space plan → Landlord review (10–15 business days)
2. Construction documents (arch/MEP) → Landlord review (10–15 business days)
3. Revisions → shortened review per resubmission
4. Written approval of final Approved Plans → construction may commence

Key terms:

• Landlord approval not unreasonably withheld, conditioned, or delayed
• Permitted withholding bases: building-system impact, code violations, value reduction, use conflict
• Change orders require prior written Landlord approval
• Address whether approval delays extend completion deadline or rent commencement

4. Permitting & Compliance

• Tenant responsible for all permits, licenses, certificates of occupancy at Tenant's cost
• Permit copies to Landlord before construction; final CO upon completion
• Compliance: building codes, ADA, environmental regulations, all applicable law
• Contractor insurance minimums: CGL, workers' comp, builder's risk — Landlord as additional insured
• Insurance certificates delivered before work commences

5. Construction Provisions

Contractor selection — specify model: Tenant as GC, Landlord-managed, or Landlord-approved contractor list. Require pre-qualification (experience, financial stability, licensing, insurance).

Standards:

• Good and workmanlike manner; new materials ≥ building standard
• Minimize interference with other tenants and building operations
• Restrict hours, noise, common area use, material storage, debris disposal

Inspection & punch list:

• Landlord right to inspect in progress; non-conforming work corrected promptly
• Punch list at Substantial Completion; 30–60 day completion window
• Tenant delivers as-built drawings, warranties, O&M manuals

6. TI Allowance Structure

7. Disbursement Procedures

Draw request documentation: paid invoices, conditional and unconditional lien waivers (all tiers), evidence of payment, certification of compliance with Approved Plans.

Mechanics:

• Monthly progress draws or lump sum at Substantial Completion — specify
• 10% retainage until final completion + final unconditional waivers + lien-period expiration
• 30-day Landlord processing period after complete documentation
• Payment direct to Tenant or to Tenant's GC
• Tenant indemnifies against mechanics' liens; must bond or remove liens promptly

8. Cost Overruns

• Tenant solely responsible for Over-Allowance Amount
• Tenant pays excess directly to contractors (or deposits with Landlord if Landlord-managed)
• Before construction: Tenant demonstrates overrun funding ability (LOC, cash deposit, or acceptable security)
• Specify cost-savings treatment: reversion, credit, or additional improvement use
• Change-order cost increases approved and paid by Tenant

9. Timeline & Completion

Delay classification:

Tenant's written notice of claimed Substantial Completion triggers Landlord inspection. Rent commencement not delayed by Tenant's non-excusable failure.

10. Default & Remedies

Tenant defaults: failure to complete by deadline, failure to pay overruns, non-conforming construction.

Landlord remedies: complete work and charge Tenant; require removal of non-conforming work + restoration; cross-default under Lease with termination rights.

Early termination: remove partially completed work and restore premises; reimburse disbursed TI Allowance funds. Improvements become Landlord's property; Tenant maintains during Lease term.

11. Signature Blocks

Both parties: full legal name, authorized representative signature line, printed name/title, date. Include entity authority representations and notarization blocks if required by jurisdiction.

Pitfalls & Checks

• Cross-reference Lease defined terms consistently with matching capitalization
• Verify all dollar amounts, RSF figures, and timeframes are internally consistent
• Governing law must match the Lease
• Include amendment procedure (written, signed by both parties)
• Check local lien-filing periods and mechanic's lien statutes for applicable jurisdiction
• Multi-tenant building: address coordination with Landlord's base building contractor
• Do not include FF&E procurement — belongs in a separate exhibit