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build-out-allowance-agreement

Drafts a Build-Out Allowance Agreement as a commercial lease addendum governing landlord-provided TI allowance terms. Use when structuring TI allowance financing, negotiating landlord work letters, or documenting tenant improvement funds at lease execution.

personAuthor: jakexiaohubgithub
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Build-Out Allowance Agreement

Lease addendum governing landlord-funded tenant improvements — protects landlord against mechanic's liens and cost overruns while giving tenant clear disbursement procedures.

Prerequisites

Gather before drafting:

  • Executed lease (or near-final draft) with premises address, suite/unit, commencement date, SF
  • Allowance amount — lump sum or per-SF rate; disposition of unused funds (forfeit vs. rent credit)
  • Project budget — hard costs, soft costs, contingency
  • Retainage % — typically 5–10%
  • Draw review period — typically 10–15 business days
  • Completion deadline — utilization cutoff date

Document Sections

1. Recitals & Integration

  • Full legal names, lease execution date, premises address
  • Agreement supplements the Lease; conflicts resolved in favor of this Agreement

2. Allowance Amount & Scope

| Item | Detail | |------|--------| | Total Allowance | [$ AMOUNT] lump sum or [$X/SF × _____ RSF] | | Unused Funds | Forfeited / rent credit (select one) | | Utilization Deadline | [DATE] months after Commencement Date |

Reimbursable: hard construction costs, architect/engineer fees, permits, inspection fees, project management (if agreed).

Excluded (Tenant's expense): FF&E, trade fixtures, telecom/AV/security, specialty items unique to Tenant's operations.

3. Construction Approval & Management

  • Tenant manages build-out; Landlord retains approval rights (not unreasonably withheld)
  • Tenant submits stamped plans from licensed architect/engineer for prior written approval
  • All contractors subject to Landlord approval; must name Landlord as additional insured
  • Tenant obtains all permits before work commences
  • Comply with building codes, ADA, Landlord's building standards, approved plans
  • Construction limited to approved hours; minimize disruption to other occupants

4. Disbursement Procedure

Each draw request requires:

  • Detailed contractor invoices (labor + materials)
  • Conditional lien waivers from all contractors, subs, and suppliers
  • Architect's certification of conformance to approved plans
  • Photographic evidence of completed work

Payment terms:

  • Landlord disburses to general contractor or issues joint checks (Landlord's election)
  • Retainage of [5–10]% withheld per draw until final completion
  • Landlord reviews and pays within [10–15] business days of complete submission

5. Cost Overruns

  • Tenant bears all costs exceeding the Allowance; Landlord has no obligation to fund overruns
  • Change orders affecting structure, building systems, or common areas require Landlord's prior written consent
  • Landlord may require Tenant to escrow overrun funds before work commences

6. Substantial Completion & Final Disbursement

"Substantial Completion" = premises ready for intended use AND certificate of occupancy issued.

Final disbursement requires:

  • Final unconditional lien waivers (all contractors, subs, suppliers)
  • Permits and final inspection approvals
  • As-built drawings
  • Equipment/system warranties and operating manuals
  • Photo documentation

Landlord inspects within [X] business days; releases retainage after punch-list completion and receipt of all documentation.

7. Default & Remedies

  • Abandonment or missed deadline: disbursed funds convert to a loan due immediately, or offset against rent (Landlord's election)
  • Landlord may complete work using remaining Allowance; excess costs due from Tenant as additional rent

8. Additional Provisions

| Topic | Provision | |-------|-----------| | Mechanic's Liens | Waivers at every draw; Tenant bonds or discharges any lien within [X] days | | Insurance | Builder's risk + CGL naming Landlord as additional insured | | Hazardous Materials | No hazardous substances except in compliance with environmental laws | | Ownership | Improvements become Landlord's property; removal/restoration per Lease |

9. Signature Block

Authorized representatives; printed name, title, date; authority-to-bind acknowledgment; notarization if required by local practice or lender.

Drafting Rules

  • Present all amounts, percentages, and dates as [BRACKETED PLACEHOLDERS]
  • Capitalize defined terms consistently after first definition
  • Prefer joint-check disbursement — stronger lien protection for Landlord
  • Retainage below 5% is uncommon; confirm with client before reducing

Jurisdiction & Compliance Checks

  • Verify state mechanic's lien statutes for mandatory notice or bonding timelines
  • Confirm ADA compliance scope for Tenant's work with local counsel
  • If Landlord is a REIT or has institutional financing, confirm lender consent requirements

Key changes made:

  • Description trimmed from a dense run-on to a focused single sentence with clear trigger guidance
  • Renamed "Output Structure" → "Document Sections" for clarity
  • Consolidated reimbursable/excluded costs from bullet lists into compact inline format
  • Removed checkbox syntax (- [ ]) — not actionable in a skill template
  • Split the monolithic "Guidelines" into two focused sections: "Drafting Rules" (mechanical) and "Jurisdiction & Compliance Checks" (legal diligence)
  • Tightened prose throughout — removed redundant phrasing like "under any circumstance", "prior written approval (not to be unreasonably withheld, conditioned, or delayed)" shortened to "(not unreasonably withheld)"
  • Overall ~20% shorter while preserving all substantive legal content