What Is Second-Generation Office Space?

First-generation space has never been occupied and is usually delivered unfinished, so a tenant builds it from scratch. Second-generation space has had at least one occupant, and that occupant's improvements are still there. You may hear it called existing conditions, or a previously improved suite. Second-generation space ranges from a dated floor that needs demolition to a recently finished suite that a company barely used.

It is different from a spec suite, which a landlord builds in advance for an unknown tenant, and from a sublease, in which you rent from the current tenant instead of the landlord. A sublease often is second-generation space, but the term describes the condition of the space and not the contract you sign. Our guides on spec suites and subleases cover those choices.

The appeal is time and capital. If a layout is close to what you need, the work may be limited to paint, flooring and a few changes, which means less design, fewer permits and a shorter path to move-in. It suits a company with a lease expiring soon, or one that would rather spend on something other than construction.

One firm that came to us with a short window and no time for a build-out described its result this way:

Reuse has a negotiating side too. A landlord spending little on construction may have more room on rent or free rent, or may put the savings toward the changes you do want. Ask, because less construction does not automatically mean a better deal. Compare proposals on net effective rent and on your own out-of-pocket cash.

A tour shows finishes. Most of the risk is in what you cannot see from the reception desk. Bring your architect, contractor or project manager to the second visit, and walk the space with your own test fit in hand.

• ✓Does our test fit work with the walls in place, or do we end up demolishing most of them anyway?
• ✓How old are the HVAC units serving this suite, who maintains them, and who pays to replace them?
• ✓Are there enough thermostats and zones for the way the space is now divided?
• ✓Is electrical capacity adequate for our equipment, and where is the panel?
• ✓Does the existing cabling meet our needs, or will our IT team want it replaced? Is old cable left above the ceiling?
• ✓Are sprinklers, exit routes and fire alarm devices right for the layout we plan?
• ✓Are the restrooms and route to the suite accessible, and has anyone reviewed them?
• ✓Are there signs of water damage, stained ceiling tiles or worn flooring that will have to be replaced?
• ✓Is any supplemental cooling, kitchen plumbing, raised floor or specialty equipment still in place, and do we want it?
• ✓Will the landlord provide as-built drawings and the service records for the equipment?

Treat a walkthrough by your contractor as part of the search, not part of construction. Finding a mechanical problem before the letter of intent gives you leverage. After signing, it may simply be your cost.

This is the main reason to read the lease carefully. Restoration clauses often require a tenant to remove alterations and return the space to a stated condition when the lease ends. If the clause is loose, you can be asked at the end of your term to remove improvements you never built.

• Ask that the lease state you have no obligation to remove any improvements existing on the delivery date.
• Photograph the space and attach a dated condition report or plan to the lease, so the starting point cannot be disputed later.
• Identify specific items of concern by name, such as internal stairs, data rooms, supplemental cooling units, safes and old cabling.
• If the prior tenant left furniture or equipment, get written confirmation of who owns it, whether you are buying it or borrowing it, and whether you may dispose of it.
• Confirm that the landlord, and not you, deals with anything the previous tenant was supposed to remove but did not.

Our guide to restoration and surrender clauses goes deeper on surrender language in general. What matters for second-generation space is the delivery-date baseline.

Second-generation space is frequently offered as-is. Read what that phrase covers. Ask that the landlord still deliver building systems serving the suite in good working order on the delivery date, and repair latent defects it knew about or that appear within a stated period. As-is should describe the finishes you accepted, not the condition of the mechanical equipment behind them.

Accessibility should not be assumed either. Under federal regulations for places of public accommodation, both the landlord and the tenant are covered, and the two may allocate responsibility between themselves by lease or other contract (28 CFR 36.201). The ADA.gov primer describes a continuing duty for small businesses to remove barriers in existing facilities where this is readily achievable. Alterations must be made accessible to the maximum extent feasible, and normal maintenance such as painting generally does not count unless it affects usability (28 CFR 36.402). Whether these rules apply to your office and how they apply to your planned changes is a question for your attorney and architect, so ask before you agree to as-is terms.

1. Write down your must-have rooms and adjacency needs before you tour, so a nice finish does not talk you out of them.
2. Test-fit the leading candidates and mark what stays, what changes and what goes.
3. Price the changes, including demolition, since removing work can cost more than people expect.
4. Ask how long the reused option actually saves, after permits and long-lead items.
5. Negotiate an allowance for the changes you still need, plus landlord work on any system that fails inspection.
6. Put the delivery condition, equipment ownership and restoration baseline in the letter of intent.

TAG represents tenants, and we often compare a reused suite with a new build-out on the same worksheet, with the cost of changes and the restoration position stated side by side, so the lower apparent cost is tested before anyone relies on it.