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LEASE AGREEMENT REFERENCE GUIDE 1250: DRAFTING THE TENANT WORK LETTER ADDENDUM $24.95


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Lease Strategies
1250

Product Overview

This LARG contains the following items:

The Major Tenant and the Work Letter Addendum, and the Lease Clause Critique: The Pro-Tenant Work Letter Standard Addendum.

Number of Single Spaced Pages: 12

 

Excerpt

Drafting the Pro-Tenant Work Letter Addendum

 

Major tenants who lease large chunks of space must routinely deal with a numbing variety of work letters governing the construction of improvements in the premises. Such work letters are often attached to the lease as exhibits, and their contents can sometimes make for less than fascinating reading. This is because work letters typically specify the exact construction materials and standards applicable to the construction of the tenant's improvements in the premises.

Mundane But Necessary Details

This level of specificity requires the tenant to sort through constructions details such as:

  • the number and location of electrical outlets;
  • the amount of heating, ventilating and air conditioning;
  • the type of hardware to be use on doors and windows in the premises; and
  • permitted or furnished interior finishes for the space.

The "Expanded" Work Letter

But the tenant's review of the work letter doesn't end with construction details. During the seventies and eighties landlords began to expand the scope of work letters beyond their traditional content regarding specifications for leasehold improvements. Landlords typically added a host of substantive new provisions which were related to construction, but which affected important issues normally covered in the body of the lease such as commencement of the term, the rent start date, indemnification, insurance, access to the premises during construction, limitations on contractors used by the tenant, and so forth.

Examples of such provisions include:

  • delay clauses which accelerate the commencement of the term (and the payment of rent) by the length of any delays caused by the tenant during the construction process;
  • elaborate requirements concerning the submission of plans and the approval of those plans by the landlord;
  • restrictive language requiring the tenant to only use certain contractors if the tenant was constructing all or a portion of its own leasehold improvements;
  • liberal pro-landlord definitions of "substantial completion" which could technically deem improvements constructed by the landlord :substantially complete" even though:
    - certain elements of the complex's common area such as elevators and parking garages were not finished; and
    - no certificate of occupancy had been issued for the building containing the premises;
    - comprehensive insurance requirements for the tenant during the construction period; and
    - expansive indemnifications of the landlord by the tenant for any loss caused by the tenant or its agents during the course of construction.

The Role of the Tenant's Addendum

The major tenant will always have to review the work letter's language describing the individual business deal for the leasehold improvements with care. Details concerning who builds exactly what in the space, and how that construction is paid for are critical components of the lease's economics.

That being said, the major tenant can substantially improve the boiler plate ultimately contained in the work letter by submitting its own work letter addendum at the outset of lease negotiations. That approach is probably the best way to get pro-tenant language on the table concerning important work letter matters such as the definition of substantial completion, punchlists, delays, credits and substitutions, warranties and building standard work exclusions.

Getting Down to the Details

The following section contains several clauses from a standard form addendum drafted in favor of a major office building tenant. The addendum is meant to be attached to either the lease or the work letter, and it contains the following sort of pro-tenant provisions:

  • a punchlist clause that allows the tenant to withhold twenty-five percent of the first month's minimum rent as security for the completion of punchlist items, and which requires that such items be completed within thirty days following substantial completion;
  • a pro-tenant delivery clause which protects the tenant in case the premises are not completed by the landlord as originally contemplated by the parties at the signing of the lease;
  • a definition of "substantial completion" of the landlord's work which requires the issuance of a temporary or permanent certificate of occupancy;
  • a "substitutions and credits" clause which gives the tenant credit for building standard work items which are not used in the tenant's plans, assuming the landlord approves the plans;
  • a provision which excludes certain types of costs from the cost of construction paid by the tenant;
  • a clause giving the tenant the right to audit construction costs relating to the premises;
  • a landlord guarantee of all its construction; and
  • a broad landlord indemnity in favor of the tenant relating to losses or damages arising from the landlord's construction activities.

(continued)


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