Moving into a new commercial space is an exciting milestone in your company’s journey, but in many cases, the property will need a few updates before it can fully support your unique needs.
Tenant improvements can help you transform a blank piece of commercial real estate into the business space you’re envisioning. However, negotiating tenant buildouts with a landlord can be a delicate process and it requires some careful planning.
What do tenant buildouts include?
Tenant buildouts are any updates you make to the structure, function, or appearance of a commercial space prior to moving in and opening for business. They may also be referred to as tenant or leasehold improvements. Regardless of the exact term used, the upgrades could include:
- New interior appearance or layout
- Plumbing, electrical, or HVAC updates
- Installation of security systems
- New window treatments
- Updated signage
Such changes are imperative to turning a commercial property into a viable place of business, but determining how they will take place and who will pay for them isn’t always straightforward.
How to Negotiate Tenant Improvements
There are a lot of factors to consider when planning tenant improvements, but when it comes to negotiations, preparation is paramount. To get started on the right foot, follow these steps.
Identify Your Needs
Tenant buildouts are unique to each business. Prior to initiating any negotiations or agreements, take the time to examine exactly how you want to update the commercial space. Determine how long the upgrades will take, how much they will cost, and how improvements can feasibly fit into your budget and timeline.
Research the Market
To find a great deal, you always want to research how much commercial space costs in your area for a similar space and what types of improvements landlords may offer. Having an idea of what the local market looks like will give you more confidence and knowledge as you proceed with negotiations.
Learn About Different Buildout Agreements
When researching landlords and the local market, you’ll also want to see which type of buildout agreement is better suited to your goals: turnkey or allowance. While landlords don’t always offer both, knowing the difference can help you find an agreement that fits your needs.
With a turnkey buildout, the landlord will make all necessary improvements based on your specifications. While you will not be responsible for the construction costs or process, you may be required to pay minor fees for things like furniture. This can be a great option if you prefer a hands-off approach with a lower price.
Meanwhile, with a tenant improvement allowance, the landlord will give you a specific cash allowance to customize the space. You will have to pay any expenses that exceed the allowance, but you will have more control over the construction process and final result.
Create a Proposal and Negotiate
Once you know exactly what you need, what market prices typically run, and how you want to perform your improvements, it’s time to create a proposal. Outline every detail with as much specificity as possible and present it to prospective landlords.
During this process, be prepared to negotiate and answer questions. This step often takes the longest and is full of the most uncertainty, but it’s a crucial part of reaching an agreement that works for both you and the landlord.
Work With a Commercial Real Estate Attorney
Reaching an agreement with a landlord isn’t easy, especially if this is your first time moving into a commercial space. Landlords want to save money and protect their best interests. Without experience or legal expertise, it may be challenging to agree on terms that suit your needs and goals.
Getting legal advice or representation from a commercial real estate attorney can give you more confidence when entering the negotiation phase.
At Sul Lee Law Firm in Dallas, TX, our goal is to help you build a strategy that supports your long-term success. From navigating lease documents to negotiating tenant buildouts, we can help you every step of the way.