In the Spotlight: A 'Down-and-Dirty' Guide to Drafting Basic Landlord's Work Provisions

It is not an uncommon occurrence that installations need to be made to prepare commercial premises for a tenant's initial occupancy. Ideally, the parties will have a detailed set of plans and specifications prepared by licensed architects and engineers, which can be attached as a lease exhibit. Especially for large construction projects, it is critically important to obtain plans that are as specific as possible to ensure there is no mistake with regard to the work that needs to be done. Even if drawings and site plans are carefully prepared, the amount of litigation related to building installations is staggering.

For a smaller deal, however, the parties may not be able to afford hiring expensive architects and engineers. Nevertheless, the parties may still need to describe, as precisely as they can, the work that needs to be performed. Many owners ' and the lawyers who represent them ' find this to be a daunting task, since they have little or no knowledge relating to building construction matters. To make matters worse, landlords seek to describe the work they are performing (also known as “Landlord's Work” in contract drafting parlance) as vaguely as possible. They want to give themselves as much “wiggle room” as they can to construct improvements as they see fit. For example, if a tenant fails to specify where installations should be placed, a landlord may install them in a manner that will minimize its costs even if such installations make little sense from an operational point of view. Savvy tenants will not let this happen.

Landlord's Work Exhibits

The rule of thumb for Landlord's Work exhibits should be: “As the cost of the installation goes up, the amount of detail required to describe the work should also increase.” Another way of looking at it is: “Why spend $10,000 to prepare elaborate plans and specifications, when the items only cost $5,000 to install?”

Of course, “one size does not fit all.” Each deal is different and there are countless permutations of what can be described as “Landlord's Work.” There are some requirements, however, that can be seen as somewhat “generic” in nature which can be used as a guide when preparing a Landlord's Work exhibit. Although the use of these generic requirements ' and consulting with professionals who are more knowledgeable in the building design and construction field ' is not a foolproof method of preparing a Landlord's Work exhibit, it can go a long way toward eliminating many of the “misunderstandings” that arise during the initial construction phase of a project. Using Black's Guide (see www.blacksguide.com) is also recommended as a starting point in preparing a Landlord's Work exhibit. In addition, it may be helpful actually to visit the space to get a better perspective in evaluating the premise's existing condition and to determine what may need to be done to make the space fit for a new tenant's use.

Model Language

Landlord's Work: Landlord's work shall consist of the following to be performed at _____'s expense:

Landlord shall bring a cold water line for lavatory purposes, a waste line, a hot water line for heating (but not for lavatory or other use), and a condenser water line for air conditioning to the perimeter of the Demised Premises at locations to be reasonably determined by [Landlord] [Tenant];

Landlord shall bring an electric line (with __ amps, __ phase __ volt electric service) from the Building's electric room to the Demised Premises at locations to be reasonably determined by [Landlord] [Tenant] (but Tenant shall tie-into this line at its sole cost and expense) [note: separate lines may be needed to operate certain equipment such as computer systems];

Landlord shall install [insert dimensions] __ watt fluorescent lamps per __ square feet of rentable space;

Preliminary storefront and signage plans and specifications are annexed hereto as Exhibit __ [attach a rough drawing of plans that describe the approximate dimensions (height, width and length), weight, color and location of the storefront and sign];

Landlord shall demise the perimeter walls of the Demised Premises and install partitions and __ foot doors with hardware [and locks], located where shown on the diagram attached as Exhibit __;

Landlord shall paint all new demising and partition walls with two coats of paint [and sealer, if new construction] using [Landlord's Building Standard colors] [colors chosen by Tenant ' insert paint manufacturer];

Landlord shall install Building standard [carpeting and/or other flooring, i.e., asphalt tile floor covering] within the cross-hatched areas described in Exhibit ___;

Landlord shall install ___ Americans with Disabilities Act (ADA) compliant (pursuant to 28 CFR Part 36, revised July 1, 1994) lavatory(ies) at location(s) and having a size and configuration reasonably determined by _____ [insert specific items to be installed in lavatory, such as number of sinks];

Landlord shall grade the ground in the front of the Building so as to minimize the risk of rainwater from seeping through the Building's foundation;

Landlord shall install new weather-tight roofing material on the roof of the existing structure. All roof and other exterior work performed by Landlord shall be watertight;

Landlord shall remove all existing plumbing from the interior of the Demised Premises leaving all plumbing stubbed;

Landlord shall [repair] [remove] the existing [exhaust system] [HVAC system];

Landlord shall provide the Demised Premises with and install a new dedicated hot water heater and a new dedicated __ (__) ton heating, ventilation and air conditioning system with thermostats, all as located in the attached Exhibit ___;

Landlord shall install the necessary duct work to distribute air conditioning to the Demised Premises. The new HVAC system and duct work shall be placed and ducted in approximately the locations shown on the attached Exhibit ”. Landlord shall assign (if assignable) to Tenant or enforce on Tenant's behalf (if not assignable) the manufacturer's warranty thereof;

Landlord shall deliver the Demised Premises gutted and “broom clean,” with all partition walls, fixtures, personal property and debris demolished and removed, with floors to be [level concrete slab] [or wood floor], in stable, dry condition, capable of supporting ___ pounds per square foot;

Landlord shall install a primary entrance for the Demised Premises that meets all federal, state, and local disabled “accessibility” codes at a location to be reasonably determined by [Landlord] [Tenant];

Landlord shall perform all other work necessary to bring the Demised Premises into compliance with applicable construction, health and safety codes for [retail/office/warehouse] use; and

Landlord shall obtain any necessary change in the [Certificate of Occupancy/Equivalent of a Certificate of Occupancy in the jurisdiction where the Demised Premises is located] required for Tenant's use of the Demised Premises.

Be Specific

There will be much less chance of a disagreement later on if the parties can be as specific as possible in describing any item(s) to be installed, including those described as landlord's “building standards.” Identifying the manufacturer and part numbers, if available, and the exact size, color, and capacity of items, if applicable, would be a good way to begin this discussion. Much of this information can be found on the Internet. In addition, many tenants require the floor slab of their space to be reinforced if they intend to install certain equipment. If there is a need for reinforced flooring or other special installations or if hazardous materials, such as asbestos, must be removed from the premises, it is likely that more detailed plans and specifications will be necessary. Not all deals can get away with using simple Landlord's Work exhibits.

Consult with the Team

When a Landlord's Work exhibit is drafted, all members of a leasing team who have any knowledge of the tenant's construction and operational requirements should be consulted. Getting these individuals “on board” is a key element in maximizing the chances that the work will be performed in accordance with a tenant's wishes and helps make the Landlord's Work exhibit a far more comprehensive document than would have otherwise been the case. Crafting a comprehensive Landlord's Work exhibit will also reduce the possibility of having a conflict with the landlord after the work is completed.

Avoid Postponements

Postponing a tenant's opening date because premises are not ready is not good for either party; the landlord may be delayed in receiving the rents it desires and the tenant may not begin making money unless it is physically in the space and operating its business. Carefully preparing a Landlord's Work exhibit can achieve the goals of both the landlord and tenant with just a little attention to detail.

Mark Morfopoulos, a member of this newsletter's Board of Editors, is with the Pine Brook, NJ, firm of Aboyoun & Heller.

It is not an uncommon occurrence that installations need to be made to prepare commercial premises for a tenant's initial occupancy. Ideally, the parties will have a detailed set of plans and specifications prepared by licensed architects and engineers, which can be attached as a lease exhibit. Especially for large construction projects, it is critically important to obtain plans that are as specific as possible to ensure there is no mistake with regard to the work that needs to be done. Even if drawings and site plans are carefully prepared, the amount of litigation related to building installations is staggering.

For a smaller deal, however, the parties may not be able to afford hiring expensive architects and engineers. Nevertheless, the parties may still need to describe, as precisely as they can, the work that needs to be performed. Many owners ' and the lawyers who represent them ' find this to be a daunting task, since they have little or no knowledge relating to building construction matters. To make matters worse, landlords seek to describe the work they are performing (also known as “Landlord's Work” in contract drafting parlance) as vaguely as possible. They want to give themselves as much “wiggle room” as they can to construct improvements as they see fit. For example, if a tenant fails to specify where installations should be placed, a landlord may install them in a manner that will minimize its costs even if such installations make little sense from an operational point of view. Savvy tenants will not let this happen.

Landlord's Work Exhibits

The rule of thumb for Landlord's Work exhibits should be: “As the cost of the installation goes up, the amount of detail required to describe the work should also increase.” Another way of looking at it is: “Why spend $10,000 to prepare elaborate plans and specifications, when the items only cost $5,000 to install?”

Of course, “one size does not fit all.” Each deal is different and there are countless permutations of what can be described as “Landlord's Work.” There are some requirements, however, that can be seen as somewhat “generic” in nature which can be used as a guide when preparing a Landlord's Work exhibit. Although the use of these generic requirements ' and consulting with professionals who are more knowledgeable in the building design and construction field ' is not a foolproof method of preparing a Landlord's Work exhibit, it can go a long way toward eliminating many of the “misunderstandings” that arise during the initial construction phase of a project. Using Black's Guide (see www.blacksguide.com) is also recommended as a starting point in preparing a Landlord's Work exhibit. In addition, it may be helpful actually to visit the space to get a better perspective in evaluating the premise's existing condition and to determine what may need to be done to make the space fit for a new tenant's use.

Model Language

Landlord's Work: Landlord's work shall consist of the following to be performed at _____'s expense:

Landlord shall bring a cold water line for lavatory purposes, a waste line, a hot water line for heating (but not for lavatory or other use), and a condenser water line for air conditioning to the perimeter of the Demised Premises at locations to be reasonably determined by [Landlord] [Tenant];

Landlord shall bring an electric line (with __ amps, __ phase __ volt electric service) from the Building's electric room to the Demised Premises at locations to be reasonably determined by [Landlord] [Tenant] (but Tenant shall tie-into this line at its sole cost and expense) [note: separate lines may be needed to operate certain equipment such as computer systems];

Landlord shall install [insert dimensions] __ watt fluorescent lamps per __ square feet of rentable space;

Preliminary storefront and signage plans and specifications are annexed hereto as Exhibit __ [attach a rough drawing of plans that describe the approximate dimensions (height, width and length), weight, color and location of the storefront and sign];

Landlord shall demise the perimeter walls of the Demised Premises and install partitions and __ foot doors with hardware [and locks], located where shown on the diagram attached as Exhibit __;

Landlord shall paint all new demising and partition walls with two coats of paint [and sealer, if new construction] using [Landlord's Building Standard colors] [colors chosen by Tenant ' insert paint manufacturer];

Landlord shall install Building standard [carpeting and/or other flooring, i.e., asphalt tile floor covering] within the cross-hatched areas described in Exhibit ___;

Landlord shall install ___ Americans with Disabilities Act (ADA) compliant (pursuant to 28 CFR Part 36, revised July 1, 1994) lavatory(ies) at location(s) and having a size and configuration reasonably determined by _____ [insert specific items to be installed in lavatory, such as number of sinks];

Landlord shall grade the ground in the front of the Building so as to minimize the risk of rainwater from seeping through the Building's foundation;

Landlord shall install new weather-tight roofing material on the roof of the existing structure. All roof and other exterior work performed by Landlord shall be watertight;

Landlord shall remove all existing plumbing from the interior of the Demised Premises leaving all plumbing stubbed;

Landlord shall [repair] [remove] the existing [exhaust system] [HVAC system];

Landlord shall provide the Demised Premises with and install a new dedicated hot water heater and a new dedicated __ (__) ton heating, ventilation and air conditioning system with thermostats, all as located in the attached Exhibit ___;

Landlord shall install the necessary duct work to distribute air conditioning to the Demised Premises. The new HVAC system and duct work shall be placed and ducted in approximately the locations shown on the attached Exhibit ”. Landlord shall assign (if assignable) to Tenant or enforce on Tenant's behalf (if not assignable) the manufacturer's warranty thereof;

Landlord shall deliver the Demised Premises gutted and “broom clean,” with all partition walls, fixtures, personal property and debris demolished and removed, with floors to be [level concrete slab] [or wood floor], in stable, dry condition, capable of supporting ___ pounds per square foot;

Landlord shall install a primary entrance for the Demised Premises that meets all federal, state, and local disabled “accessibility” codes at a location to be reasonably determined by [Landlord] [Tenant];

Landlord shall perform all other work necessary to bring the Demised Premises into compliance with applicable construction, health and safety codes for [retail/office/warehouse] use; and

Landlord shall obtain any necessary change in the [Certificate of Occupancy/Equivalent of a Certificate of Occupancy in the jurisdiction where the Demised Premises is located] required for Tenant's use of the Demised Premises.

Be Specific

There will be much less chance of a disagreement later on if the parties can be as specific as possible in describing any item(s) to be installed, including those described as landlord's “building standards.” Identifying the manufacturer and part numbers, if available, and the exact size, color, and capacity of items, if applicable, would be a good way to begin this discussion. Much of this information can be found on the Internet. In addition, many tenants require the floor slab of their space to be reinforced if they intend to install certain equipment. If there is a need for reinforced flooring or other special installations or if hazardous materials, such as asbestos, must be removed from the premises, it is likely that more detailed plans and specifications will be necessary. Not all deals can get away with using simple Landlord's Work exhibits.

Consult with the Team

When a Landlord's Work exhibit is drafted, all members of a leasing team who have any knowledge of the tenant's construction and operational requirements should be consulted. Getting these individuals “on board” is a key element in maximizing the chances that the work will be performed in accordance with a tenant's wishes and helps make the Landlord's Work exhibit a far more comprehensive document than would have otherwise been the case. Crafting a comprehensive Landlord's Work exhibit will also reduce the possibility of having a conflict with the landlord after the work is completed.

Avoid Postponements

Postponing a tenant's opening date because premises are not ready is not good for either party; the landlord may be delayed in receiving the rents it desires and the tenant may not begin making money unless it is physically in the space and operating its business. Carefully preparing a Landlord's Work exhibit can achieve the goals of both the landlord and tenant with just a little attention to detail.

Mark Morfopoulos, a member of this newsletter's Board of Editors, is with the Pine Brook, NJ, firm of Aboyoun & Heller.