By: Michael Kahn, AIA, CEO, Vice President | Kahn Architecture
Hello, welcome to our 5th installment in a six-part series on the architect’s role during tenant lease negotiations. This month we will explore how tenants and landlords can obtain an accurate cost of construction during the lease negotiation phase in order to determine fair market values for "tenant improvement" (TI) reimbursements.
Once a test-fit (space plan) is created by an architect to reasonably fit a tenant's program which shall include the number and locations of all offices, conference rooms, workstations, pantries, data server rooms, etc., the next goal shall be to obtain the costs of the design.
This starts with an understanding of what the landlord is bringing to the leased premises. Some of those items include: How will the space be delivered to the tenant? Will it be demolished of all existing conditions down to the raw concrete floors, for example and will all of the existing ceilings and lighting be removed or is it being delivered as is? What about any existing furniture? Will that be refused by a tenant or will be removed by others? How much electrical service is being brought to the space? Is it brought to new electrical panels in a shared building electrical closest or does a new electrical closet / new panels are needed to be built within a tenants space? How is mechanical air conditioning being provided to the space? Is there a dedicated unit to the tenant or is it being shared amongst other tenants? What are the existing toilet room conditions? Do they require upgrading? Are new toilets needed for ADA compliance and do they meet the required occupancy headcount of the perspective tenants’ program? Does the space require sprinklers to comply with local code? Will the landlord be installing them or is the tenant responsible for the install? And last, is there asbestos that needs to be abated? In many older spaces, there could be contamination in the adhesive used in the floor installation, or maybe in the construction of ceiling tiles and wrapping of the piping throughout the space. This is probably one of the most import items to be defined. Not only due to the cost and deciding who should pay for this, but also how it can delay the taking possession of a space, which needs to comply with state abatement requirements. That can take at least a month for approval.
The tenant’s floor plan will also need to be budgeted. Working with a general contractor is the way to go to determine a budget, and preferably with a company that understands current construction labor costs. The architect’s role here is important in order to develop all of the items needed, from both tenant and landlord (and to ensure code compliancy and meeting of ADA requirements), discussing the plan in greater detail. The best budgets are those that are broken down into different trades. I will list a few here: partitions, acoustics (ceilings), lighting, metal & glass, flooring, doors, frames & hardware, window treatment, mechanical distribution and control, sprinkler, plumbing, fire alarm, and electrical. All of these line items become a benchmark to determine a construction budget. The takeoff is based, to name a few, in linear footage for painting and partitions, in square footage for ceilings and flooring, and in unit pricing for lighting and other individual elements, i.e. sprinkler heads and electrical outlets.
Once a contractor has provided a detailed line item budget, the tenant and landlord can discuss the actual value being offered by the landlord in the TI allowance and be able to agree on the out-of-pocket costs that a tenant needs to finance as well as the overall expected deliverables by the landlord. The budget also allows the tenant to look at a budget in order to develop a final design and what additional funds may be available. Can we install a wall-covering in lieu of painting, and is there room in the budget to add decorative lighting? Can lay-in ceilings be changed to pop-up sheetrock ceilings? Can we increase the quality of the flooring? Can we add a custom reception desk to the design? Not all of the proceeding items are always needed or wanted by a tenant, but the budget allows all of these types of items to be discussed and further developed during the project’s design and final budgeting phase.
Tenants can utilize the architect to discover the full scope of TI costs when looking at prospective spaces, from understanding the infrastructure upgrades needed to how their floor plan can maximize the occupancy efficiency. With this knowledge, both landlord and tenant will have an opportunity to better negotiate the lease.
Michael Kahn is the co‐owner of Kahn Architecture, a women's owned corporate interior architecture firm located in Midtown Manhattan specializing in office build‐outs. Michael is NCARB‐certified, a member of the AIA and licensed in New York, Connecticut, New Jersey and Washington DC.
Michael Kahn, AIA
2 West 45th Street, Suite 502
New York, NY 10036