The Office Build-Out Process, Step by Step

Before any drawing is made, the deal has to settle who is building the space. There are two common structures, and every later step looks different depending on which one you choose.

• Landlord-built (often called turnkey): the landlord hires the architect and contractor and delivers finished space to an agreed plan. You give up some control over details and get less exposure to cost overruns, provided the plan is defined precisely.
• Tenant-built with an allowance: you hire the architect and contractor, the landlord contributes a tenant improvement allowance, and you pay anything above it. You control quality and schedule, and you carry the overrun risk.

Neither is better in the abstract. A small team taking a simple layout often prefers the landlord to build. A company with a secure room, a hardware bench, heavy cabling or a specific design standard usually wants control. What matters is that the lease attachment that governs construction, usually called the work letter, matches the structure you picked and is negotiated with the same care as the rent.

Design starts before the lease is signed. A test fit shows whether your program fits the floor. After the business terms are agreed, the architect develops that sketch into a space plan you approve, then into construction drawings with engineering for mechanical, electrical, plumbing and fire protection systems.

The slow part of design is rarely the drawing. It is decisions. Every room count, finish and equipment location that is still open when drawings begin becomes a revision later. Name one person inside your company who can approve layouts and finishes, and give that person a deadline for each round.

Tell the architect about anything unusual on day one: a server room, supplemental cooling, a lab bench, heavy equipment, extra power at desks, or a secure area. These items drive engineering, and discovering them after drawings are priced is how schedules slip.

Once drawings are far enough along, contractors price them. In a tenant-built project you can ask several general contractors to bid the same drawings, or negotiate with one contractor you trust. In a landlord-built project the landlord prices the work, and your protection is the level of detail in the plan and specifications attached to the lease.

Pricing almost always produces a gap between what you drew and what you budgeted. Closing that gap is called value engineering: substituting finishes, simplifying ceilings, reusing existing rooms. Leave room in the schedule for it. Our guide to what drives build-out costs explains where the money usually goes.

Ask how the landlord charges for its own involvement. Many leases include a construction supervision or management fee taken from the allowance, and some require you to use building-approved engineers or trades for certain systems. These are negotiable before the lease is signed and very hard to change after.

Two approvals sit between finished drawings and the start of construction. The landlord reviews the plans under the work letter, and the local building department reviews them for a permit. How long a permit takes depends on the municipality, the scope of work and how busy the department is, so your architect or a permit expediter should give you a realistic range for your specific project rather than a rule of thumb.

The landlord review is the one you can negotiate. A well-drafted work letter sets a deadline for the landlord to approve or comment, limits the reasons it can object, and states what happens if it does not respond in time.

Long-lead items belong in this step too. Some equipment, such as cooling units, electrical gear, specialty doors and certain furniture, may need to be ordered before the permit is issued so it arrives when the contractor needs it. Ask the contractor for a list of long-lead items as soon as the design is stable.

Construction is the most visible stage and usually the most predictable, if the earlier steps were done well. Expect regular site meetings, a schedule that the contractor updates, and change orders. A change order is a priced change to the agreed scope. Some are unavoidable, such as a hidden condition above the ceiling. Many come from late decisions by the tenant.

Near the end, the space reaches substantial completion: finished enough to use for its purpose, with only minor items outstanding. You, the architect and the contractor walk the space and write a punch list of those items. Inspections are completed, and whatever sign-off the municipality requires for occupancy is obtained. Furniture, cabling, access control, audiovisual equipment and internet service are often separate contracts that have to be sequenced around the contractor, and internet service in particular should be ordered early.

1. Confirm the build structure and negotiate the work letter with the lease.
2. Approve the space plan, then the construction drawings.
3. Price the drawings and adjust scope to the budget.
4. Obtain landlord approval and the building permit, and order long-lead items.
5. Build, with regular meetings and written change orders.
6. Walk the space, agree on the punch list and complete inspections.
7. Install furniture, cabling and technology, then move in.

Someone has to coordinate the architect, engineers, contractor, landlord, furniture dealer, cabling vendor and your own IT team. In a landlord-built project the landlord’s construction manager runs the work, but nobody on that team represents your interests, so you still need a person watching scope and schedule on your side. In a tenant-built project you can run it internally, rely on the architect, or hire an independent project manager.

For a company without a facilities team, an independent project manager is often worth considering on anything beyond a simple refresh. The cost is one more line in the budget, and the value is a single person accountable for the schedule. As a tenant representative, TAG stays involved through build-out and move-in and helps clients assemble that team, which matters because the terms that control the project were written during the lease negotiation.

Delay is the main financial risk of a build-out, because it can leave you paying rent on a space you cannot use, or paying holdover rent in the space you are leaving. The lease allocates that risk in a few specific places.

• ✓Does rent start on a fixed date, or when the space is substantially complete?
• ✓How does the lease define substantial completion, and who certifies it?
• ✓What counts as a tenant delay, and does the landlord have to give us written notice when it claims one?
• ✓If the landlord is building, do we receive rent credits or a right to terminate if delivery is very late?
• ✓If we are building, is there enough time before rent starts to finish design, permits and construction?
• ✓Is there an outside date by which the allowance must be used, and can unused allowance be applied to other costs?
• ✓What happens at our current space if the new one is late, and what does our holdover clause say?

A fixed rent start date puts every delay on the tenant, including delays you did not cause. A start date tied to substantial completion shares the risk, but landlords will carve out tenant delays such as late approvals and change orders. Have your attorney review the work letter and the commencement language together, since each one changes the meaning of the other.