A tenant improvement (TI) workletter is, more or less, a contract for construction.
It is generally an addendum to a lease agreement involving third parties, architects, and contractors. Unless a tenant occupies a space “as-is”, a work letter defines the condition of a space when the tenant moves in. It also explains how that condition will be achieved. A workletter specifies the design of a space and materials to be used. It clearly outlines who is responsible for carrying out the work as well as who will pay for it. It should specify who controls the design and construction. This can include an architect’s fees, insurance, permits, and other incidentals.
A workletter should include a clearly defined set of building standards.
This ensures a buildout is sufficient to meet code requirements. This means that all work is completed in accordance with drawings and complies with all laws and ordinances. It is also wise to include a caveat that covers liability if a latent defect is discovered during the buildout process.
Of course, there has to be a limit on the monetary allowance and costs.
Generally speaking, a tenant allowance for construction is based on the square footage of usable space. This is not necessarily the same as the rentable space. Limits need to be clear and include a buffer for the punch list. A punch list is a list of items that a contractor will include in a project. The items listed may not necessarily be part of the outlined work but are necessary in order for him or her to complete it. This list can be loosely estimated early on but by its very nature won’t be well defined until near the end of the project. All things considered, it is important to be clear about the what’s, who’s, when’s, and how’s in a workletter. This helps everyone to plan and it protects all parties against potential misunderstandings and unexpected costs.