Tenant’s Improvements & Construction

What tenants should watch for

Scope, delivery, and completion

Scope of Landlord’s Work vs. Tenant’s Work. Negotiate a detailed Work Letter exhibit specifying Landlord’s scope (base-building work, exterior, structure, code compliance for shell, ADA for common areas, HVAC stub-outs, electrical service to the demising wall) and Tenant’s scope (interior fit-out, fixtures, equipment, branded signage). Resist vague "as-is" delivery without warranties.

Delivery Condition. Insist on a delivery-condition checklist: (a) building shell weather-tight and ready for tenant fit-out; (b) HVAC capacity meeting tenant’s requirements and warranted for [12 months]; (c) plumbing fixtures installed in core and ready for tenant connection; (d) electrical service to demising wall at agreed capacity; (e) ADA compliance for common areas, parking, and exterior access; (f) environmental clearance (no hazardous materials known); (g) structural integrity warranted for [12 months]; (h) all permits for Landlord’s Work issued and signed off.

Substantial Completion. Define by reference to a written punch-list signed by both parties’ architects, with material punch-list items completed. Resist landlord-self-certification or architect-only certification. Free fixturing period of [60–90 days] from substantial completion to rent commencement; longer if tenant’s work is extensive.

Commencement date notice: deemed acceptance. Landlord forms require Tenant to countersign a commencement date notice within five (5) business days, with silence deemed acceptance of the stated Commencement Date and Expiration Date. Verify the stated dates against the delivery and substantial-completion record before signing, and negotiate a longer response period and deletion of the deemed-acceptance mechanism.

Rent commencement conditions. Negotiated tenant forms condition the Rent Commencement Date on Tenant’s practical ability to open: completed public road access to the Premises, availability of a certificate of occupancy, completion of the surrounding common areas, and Landlord’s receipt of a certificate of occupancy for Landlord’s Work.

Hard delivery dates: landlord counter-structure. When Tenant negotiates a drop-dead delivery date, expect the landlord to (i) condition the trigger date on satisfaction of defined prerequisites (executed lease, approved space plan, completed construction drawings, permits) plus a construction-period cushion; (ii) define the negotiated free-rent penalty as Tenant's “sole and exclusive” remedy; (iii) tender only the right to possession rather than completed premises; and (iv) except force majeure and Tenant Delay from the deadline. Tenant counsel should preserve a termination right at an outside date notwithstanding any sole-remedy limitation and should key the trigger to substantial completion of Landlord's Work, verified by Tenant's architect.

Delay allocation

Tenant Delays. Narrowly define Tenant Delays. Tenant should bear delay risk only for: (i) tenant-requested changes to Landlord’s Work; (ii) tenant’s failure to deliver tenant-procured materials within the agreed schedule; (iii) tenant’s failure to obtain tenant permits within the agreed schedule. Force majeure delays (supply chain, weather, labor) should be allocated to Landlord (or shared) for Landlord’s Work and to Tenant for Tenant’s Work.

Tenant Delay definition. Landlord work-letter forms provide that rent commences on the scheduled rent commencement date, even though Landlord's Work is not substantially complete, whenever the delay results from broadly defined “Tenant Delay” events: change orders, late plan submissions or approvals, failure to pay for tenant-requested work, or the tenant's own construction activities. Tenant counsel should require prompt written notice of any claimed Tenant Delay, limit the definition to delays actually and demonstrably caused by Tenant, and net Tenant Delays day-for-day against Landlord-caused delays.

Tenant Delay: landlord-form traps. Landlord work-letter forms define Tenant Delay with a catch-all covering any other act or omission of Tenant, make Landlord’s determination of the existence and duration of Tenant Delay conclusive and binding absent manifest error, and charge Tenant with all resulting cost increases, including labor and material escalation. Strike the catch-all, require Landlord to give written notice of any claimed Tenant Delay within a fixed period as a condition of asserting it, and subject disputes to the Lease dispute-resolution mechanism rather than Landlord’s unilateral determination.

Landlord Delay. If Landlord fails to deliver by the outside delivery date, Tenant should have: (a) day-for-day extension of rent commencement; (b) rent abatement for delay periods exceeding [60 days]; (c) right to terminate after [180 days] of Landlord Delay; (d) right to liquidated damages or actual costs for substitute space if Landlord Delay exceeds [90 days].

The improvement allowance

Tenant Improvement Allowance. Size: negotiate to cover the bulk of fit-out for the tenant’s intended use. Escalation: TIA should escalate at CPI or actual construction cost increases until disbursed. Disbursement: tenant draws as work progresses (monthly draw with paid invoices and conditional lien waivers), not all at completion. Unused TIA: convertible to base-rent abatement or cash credit; resist forfeiture. Draw period: at least 24 months from delivery.

TIA retainage and lien-suspension conditions. Landlord forms pay TIA draws at ninety percent with a ten percent retainage and permit Landlord to suspend all TIA payments if any mechanic’s lien is filed and to terminate the funding obligation entirely if the Lease terminates before full disbursement. Negotiate a firm deadline for release of retainage, limit suspension to liens arising from Tenant’s Work that Tenant fails to discharge or bond over within a stated period, and preserve accrued TIA claims following any Lease termination caused by Landlord default.

TIA characterized as rent; disbursement conditions. Landlords increasingly fold the TIA into base rent so that a missed reimbursement payment supports an expedited eviction proceeding rather than an ordinary contract action, and limit the allowance to hard costs with any soft-cost coverage capped at ten percent or less and furniture and equipment excluded. Tenant counsel should resist rent characterization of TIA repayment obligations, negotiate express soft-cost coverage (architectural, engineering, design, and permitting fees), and, where the TIA is paid in installments, scrutinize retainage, lien-waiver, and repayment-on-early-termination conditions that convert the allowance into disguised landlord financing.

Warranties, liens, and inspection

Construction warranties. Landlord warrants Landlord’s Work for [12 months]; structural and roof warranties for [longer period as customary]. Landlord assigns its warranties from contractors and subcontractors to Tenant for the warranty period.

Lien protection. Under ORS 87.030, Landlord can post a notice of nonresponsibility to insulate itself from liens arising from Tenant’s Work. Tenant counsel should require Landlord to post nonresponsibility notices for Tenant’s Work, and Landlord should post notices for Landlord’s Work. Confirm that no construction lien arising from Landlord’s Work can attach to Tenant’s leasehold interest.

Inspection and punch-list. Tenant has the right to inspect the Premises before delivery and to submit a written punch-list of items requiring correction. Tenant’s acceptance of delivery does not waive punch-list items. Landlord shall correct punch-list items within [60 days].