Understanding Build-Out Agreements in New York
As part of a new commercial real estate lease, landlords are often willing to build out a space or provide a credit (in the form of free rent or a work-letter) that is applied towards a build out. The extent to which a landlord will build out a space for a new tenant is negotiated between the tenant’s broker and the landlord’s leasing agent.
- If the tenant requires above-standard materials or finishes (that exceed the cost of “building standard”), the tenant is responsible for paying for the difference in cost between building standard and upgraded materials and finishes.
- Provide a work letter that stipulates the tenant will be reimbursed for the cost of construction. The tenant is allowed to hire their own licensed and insured contractors to build out their own space. The landlord then reimburses the tenant. A cap based on a dollar amount spent per square foot is typically put on the reimbursement.
- Offer free rent in lieu of construction. Generally, the longer the term of the lease, the greater the amount of free rent.
- Offer a combination of free rent and a work letter.
- Lease pre-built space that is configured in a generic manner that can appeal to a variety of office tenants.
- Offer modest improvements to the existing space such as carpeting a paint job.
- Rent the existing space in “as-is” condition.
Have questions about build-out agreements in New York? For a free consultation, contact Principal Broker Alan Rosinsky of Metro Manhattan Office Space at 212-447-5403.