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In the Spotlight: Considerations for Payment of a Construction Allowance

By Glenn A. Browne
February 27, 2008

In the course of negotiating a retail lease, landlords are often requested by tenants to pay a portion of the tenant's cost of construction of the premises. The manner in which the landlord would make such a payment is commonly called a 'construction allowance,' whereby a portion of the tenant's construction cost is defrayed by a payment made by the landlord, which payment may or may not be incorporated into the rental structure that will then be owed by the tenant during the term of the lease.

Several issues arise when contemplating the payment of a construction allowance to the tenant. In particular, issues such as the manner and timing for payment of the construction allowance, documentation required for the payment, and repayment in the event of a default by the tenant, should all be considered when addressing the issue of the construction allowance in the lease. This article discusses the foregoing issues and addresses various manners in which these issues can be dealt with in the lease.

Manner and Timing of Payment

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