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A Work Letter Primer: Crafting and Negotiating Tips for Tenant Rep Brokers

By: David Liebman, SIOR, JD, James Hochman

The more astute tenant rep brokers play a crucial role in ensuring that their clients secure favorable lease terms. Central to this process is the art of crafting the “Work Letter.” This pivotal document delineates the landlord's obligations regarding tenant improvements (TIs), acting as the lynchpin between a fluid move-in experience and unforeseen post-lease execution disputes. Here are some essential negotiating tips and points to consider when drafting a superior Work Letter:

1. Precisely Defined Scope of Work: Ensure that the Work Letter explicitly states the specific nature, quality, and extent of the TIs. Vague or ambiguous language will lead to disagreements later. Use detailed specifications and always incorporate properly scaled diagrams and blueprints. Determine whether the buildout is turnkey or based on an allowance.

2. Establish The TI Allowance: Negotiate a tenant improvement allowance that covers the cost of the proposed modifications. Align the allowance with prevailing market standards and be vigilant of fluctuating material costs. If price fluctuations impact the allowance, adjust accordingly. While a generous allowance offers more flexibility to your client in customizing the space, that allowance will likely result in an increased rental rate. Make sure the work can be done on time and within the TI allowance. Your own network of general contractors can help you here.

3. Timeline and Deadlines: Clearly stipulate a completion date for all improvements. Delays in completing TIs can disrupt your client's operations. Factor in red tape delays, since approvals by municipal authorities may impact the construction timeline. Consider including or at least seeking penalties for delays, ensuring the landlord is incentivized to finish on time and on/under budget.

4. Quality of Materials and Workmanship: The Work Letter should specify the type and quality of materials to be used. This sidesteps the landlord potentially cutting corners by using inferior materials. Include clauses that allow your client or its representatives to inspect and approve the work at various stages.

5. Oversee or At Least Have a Role in Contractor Selection: Negotiate the right for your client to have a voice in the selection of contractors or, at the very least, the ability to review and approve the chosen contractors. This often takes the form of engagement of a project manager or owner/tenant representative for these purposes, an extra cost for your tenant but well worth the expense.

6. Address Post-Occupancy Issues: Consider potential problems that might arise after the TIs are completed and your client has moved in. Include provisions for a thorough walkthrough and time to create a punch list to address any defects or unfinished tasks.

7. Payment Terms: Rather than releasing the entire TI allowance upfront, structure the payments to be milestone-based. This ensures work progresses as planned and provides leverage if issues arise.

8. Retain an Exit Strategy: Ensure that the Work Letter addresses what happens at the end of the lease term. Clarify responsibilities concerning the removal of improvements and fixtures and any restoration obligations.


Media Contact
Alexis Fermanis SIOR Director of Communications
David Liebman, SIOR, JD
David Liebman, SIOR, JD
PowerPlay Real Estate Partners

David Liebman, SIOR, JD, is the Founder and Managing Broker of PowerPlay Real Estate Partners, a Chicago-based specialty commercial real estate services firm.  A former corporate and real estate attorney, David leverages that experience with 34-plus years of CRE brokerage expertise to exclusively advise and represent industrial and office buyers, tenants and investors in acquisitions, leasing, lease renewals/restructuring, land purchases and build-to-suit transactions.  During his career, David has completed more than 500 transactions, valued at over $800 million.

James Hochman
James Hochman
Schain Banks Kenny & Schwartz

Jim Hochman is a partner at Schain Banks Kenny & Schwartz law firm and freelance writer. Contact him at jhochman@schainbanks.com.