Learning The Lingo: Tenant Improvements

Opening up a new space or relocating your business can be a dizzying process. All at the same time, you have to juggle moving into the space, paying for the space, and building it out. The fact that the tenant improvement industry uses a range of unfamiliar terms can make getting your space ready even more challenging. Here are some of the commonly used terms with which your should familiarize yourself:

Demising Wall

The demising wall of your space is what separates it from the rest of the building or, in the case of the exterior portions of the demising wall, from the outside world. The space inside the demising wall comprises your usable square footage.

Force Majeure

Your landlord usually needs to meet a predetermined schedule to deliver your completed tenant improvements ready for your occupancy. The force majeure clause allows them to deliver space behind deadline if something that they couldn't foresee happens and causes the delay. Force majeure clauses usually cover things like natural disasters or industry-wide strikes, but they wouldn't excuse your landlord if his construction manager got sick and had to take a couple of weeks off.

Landlord/Tenant Build

Your lease will generally specify who is responsible for managing the build out. If you have a "tenant build" agreement, you'll be able to build your space with your own team and to your own standards, within the building's rules. Under a "landlord build" agreement, the landlord chooses the contractor and manages the construction.

Shell

In most leases with a TI allowance, the landlord is responsible for providing space in "shell" condition. A shell means that you have a basically empty space ready for customization, but shells come in different configurations. For example, a vanilla shell typically has lighting, stubs for mechanical systems and drywall on the side of the demising wall that faces into your suite. A cold, dark shell has nothing -- no drywall, lights or HVAC. Your lease should clearly define what is included in your shell to avoid misunderstandings.

Trade Fixtures

Most leases specify that the TIs become the landlord's property when the tenant moves out, with one exception. You'll be allowed to take your trade fixtures with you. Trade fixtures are features that are specific to your business that are considered personal property even if they're attached to the space. A dentist's chair, which is frequently bolted to the floor, is an example of a trade fixture.

Turn-Key

The best possible TI concession to negotiate is one where the landlord is obligated to provide you with turn-key space. This means that they take responsibility for all of your tenant improvements so that all you need to do is to show up, turn the key to unlock it, and start occupying it.

Usable/Rentable Square Feet

While your usable square footage is the space inside your suite's demising wall, you calculate your rentable square feet by adding your usable square feet to your pro-rate share of the building's common areas. For example, if you have a 7,000 square foot space in a building with a 15 percent load factor, you'd have 8,050 rentable square feet. Look carefully at your TI allowance -- some leases grant an allowance on the rentable square footage instead of the usable square footage. If your landlord does this, it effectively gives you more money to spend.

Work Letter

Usually completed very early in the process of your TIs, the work letter is a document that outlines the construction process. Work letters specify what will be built, how it will be done, how it will be paid for, and what happens if something goes wrong.