LEASE AGREEMENT REFERENCE GUIDE 180: STRATEGIES FOR OFFICE LEASE WORK LETTERS $24.95
Work Letter Basic Training for the Tenant
Most sophisticated tenants know the rental market for new space in their area intimately, especially if they have been searching for new space for their facilities. Such tenants almost always review a number of proposals from landlords with space to lease, and compare the economic provisions of the respective deals.
After a final choice concerning location has been made by the tenant, the landlord and tenant do battle concerning the monetary provisions of the deal, i.e., the monthly rent, the expense stop, the allowance for tenant improvements, charges for parking facilities, relocation allowances from the tenant's old space, and the landlord's assumption of rental under the old lease. In U.S. markets with high vacancy rates, a major credit tenant can virtually outline any reasonable deal it wishes to make and be able to secure office space on that basis.
Enter the Construction Contract
After the rent is finalized, the specific details for improvement of the premises are spelled out in the work letter. The work letter is really a construction contract which outlines certain elements of the building normally referred to as “Landlord's Work” which are provided by the landlord at his expense, e.g., partitions and doors, painting, ceiling, lighting, floor covering, fire sprinklers, and electrical, telephone, and heating, ventilating and air conditioning (HVAC) equipment.
Any construction described in the work letter which is not “Landlord's Work” is usually characterized as “Tenant's Work” and is to be paid for by the tenant in a lump sum when the lease is signed, when the work is complete, or in progress payments if the work is substantial. Sometimes the tenant deposits funds in an escrow account based upon the amount of the construction cost estimates, and the funds are disbursed as the work is completed. Sometimes the tenant's work will be financed by the landlord, and added or “amortized” in the monthly rent to pay for the improvements.
The precise wording of the work letter concerning the responsibility for expense of the office construction can have dramatic financial consequences. Landlords usually prepare work letters which limit their obligations vis-a-vis the amount of Landlord's Work to be constructed in the premises. For example, most landlords limit the amount of lineal feet of drywall partitions and the number of office doors based upon the square footage contained in the premises or upon some other rule of thumb guideline.
Generally, interior painting of the premises is limited to two coats of paint in colors approved by the landlord, and frequently the tenant is not permitted to specify more than two colors in a single room or office. Frequently, lighting for the premises relates to a square footage standard, e.g., one fluorescent light fixture for each l00 square feet of rentable area.