Tenant Improvement Work Letter

Draft a binding Work Letter exhibit governing design, approval, construction, and payment of tenant improvements under a commercial lease.

Prerequisites

Collect before drafting:

Executed or draft lease — parties, premises, permitted use, rent commencement mechanics
TI allowance terms — total amount, per-RSF calculation, eligible cost categories
Base building scope — Landlord deliverables vs. TI Work
Building rules — contractor requirements, insurance minimums, working-hour restrictions
Target completion date — and relationship to rent commencement

Document Sections

1. Header & Recitals

Title as "WORK LETTER" or "TENANT IMPROVEMENT WORK LETTER" — label as Exhibit to Lease
Reference lease date, parties (full legal names), premises
State incorporation into Lease; specify which document controls on conflict
Align effective date with lease execution

2. Definitions

Define at minimum:

| Term | Content | |---|---| | Tenant Improvements / TI Work | All improvements per Approved Plans; distinguish from base building work | | TI Allowance | Total $, per-RSF calculation, one-time vs. replenishable | | Approved Plans | Final space plan + construction drawings + specs approved in writing | | Substantial Completion | Complete for occupancy per intended use; only punch list items remain; reference building codes | | Hard Costs | Direct construction — labor, materials | | Soft Costs | A&E fees, permits, project management | | Over-Allowance Amount | Costs exceeding TI Allowance |

3. Design & Approval Process

Four-phase flow:

Preliminary space plan → Landlord review (10–15 business days)
Construction documents (arch/MEP) → Landlord review (10–15 business days)
Revisions → shortened review per resubmission
Written approval of final Approved Plans → construction may commence

Key terms:

Landlord approval not unreasonably withheld, conditioned, or delayed
Permitted withholding bases: building-system impact, code violations, value reduction, use conflict
Change orders require prior written Landlord approval
Address whether approval delays extend completion deadline or rent commencement

4. Permitting & Compliance

Tenant responsible for all permits, licenses, certificates of occupancy at Tenant's cost
Permit copies to Landlord before construction; final CO upon completion
Compliance: building codes, ADA, environmental regulations, all applicable law
Contractor insurance minimums: CGL, workers' comp, builder's risk — Landlord as additional insured
Insurance certificates delivered before work commences

5. Construction Provisions

Contractor selection — specify model: Tenant as GC, Landlord-managed, or Landlord-approved contractor list. Require pre-qualification (experience, financial stability, licensing, insurance).

Standards:

Good and workmanlike manner; new materials ≥ building standard
Minimize interference with other tenants and building operations
Restrict hours, noise, common area use, material storage, debris disposal

Inspection & punch list:

Landlord right to inspect in progress; non-conforming work corrected promptly
Punch list at Substantial Completion; 30–60 day completion window
Tenant delivers as-built drawings, warranties, O&M manuals

6. TI Allowance Structure

| Item | Provision | |---|---| | Amount | $__ total ($__ per RSF × __ RSF) | | Eligible costs | Hard costs, A&E fees, permit fees, project management | | Excluded costs | FF&E, telecom/data cabling, security systems, Tenant change-order increases | | Unused allowance | Reverts to Landlord / rent credit / cash payment — specify with conditions and timing | | Subsequent use | Initial improvements only unless otherwise stated |

7. Disbursement Procedures

Draw request documentation: paid invoices, conditional and unconditional lien waivers (all tiers), evidence of payment, certification of compliance with Approved Plans.

Mechanics:

Monthly progress draws or lump sum at Substantial Completion — specify
10% retainage until final completion + final unconditional waivers + lien-period expiration
30-day Landlord processing period after complete documentation
Payment direct to Tenant or to Tenant's GC
Tenant indemnifies against mechanics' liens; must bond or remove liens promptly

8. Cost Overruns

Tenant solely responsible for Over-Allowance Amount
Tenant pays excess directly to contractors (or deposits with Landlord if Landlord-managed)
Before construction: Tenant demonstrates overrun funding ability (LOC, cash deposit, or acceptable security)
Specify cost-savings treatment: reversion, credit, or additional improvement use
Change-order cost increases approved and paid by Tenant

9. Timeline & Completion

| Milestone | Deadline | |---|---| | Plan submission | __ days after lease execution | | Plan approval | __ business days after submission | | Permit issuance | __ days after plan approval | | Construction start | __ days after permits | | Substantial Completion | __ days after construction start |

Delay classification:

| Type | Examples | Rent Commencement Effect | |---|---|---| | Excusable | Force majeure, Landlord-caused, governmental | Day-for-day extension | | Non-excusable | Tenant-caused, contractor performance | No extension |

Tenant's written notice of claimed Substantial Completion triggers Landlord inspection. Rent commencement not delayed by Tenant's non-excusable failure.

10. Default & Remedies

Tenant defaults: failure to complete by deadline, failure to pay overruns, non-conforming construction.

Landlord remedies: complete work and charge Tenant; require removal of non-conforming work + restoration; cross-default under Lease with termination rights.

Early termination: remove partially completed work and restore premises; reimburse disbursed TI Allowance funds. Improvements become Landlord's property; Tenant maintains during Lease term.

11. Signature Blocks

Both parties: full legal name, authorized representative signature line, printed name/title, date. Include entity authority representations and notarization blocks if required by jurisdiction.

Pitfalls & Checks

Cross-reference Lease defined terms consistently with matching capitalization
Verify all dollar amounts, RSF figures, and timeframes are internally consistent
Governing law must match the Lease
Include amendment procedure (written, signed by both parties)
Check local lien-filing periods and mechanic's lien statutes for applicable jurisdiction
Multi-tenant building: address coordination with Landlord's base building contractor
Do not include FF&E procurement — belongs in a separate exhibit