Workletter

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Strategy

Look before you lease – negotiating the workletter

The workletter is a separate contract that sets out rights and liabilities for finishing off a building’s interior space before you move in. It covers installation of interior walls, fixtures, flooring – all the finishing work – and provides a timetable for completion.

Many landlords propose workletters that recognize two kinds of delay: "tenant-caused delay" and "force majeure," or excusable delay. With tenant delays, you pay, usually by reimbursing the landlord for extra out-of-pocket costs and by paying rent even before you can move into your space. But many landlords, concerned about their expenses, try to make tenants responsible for delays they can’t control. Similarly, landlords may penalize tenants for delays that are actually part of the normal back-and-forth required to get everyone to sign off on working drawings or unit prices.

To protect yourself, check the definition of tenant-caused delay. It should cover only those situations you can control. Make sure your workletter includes a realistic schedule for producing and reviewing drawings, bidding out the work, and so on. And make sure you’re paying only for delays that affect a project’s critical path – the schedule of dates that tells your landlord when each task must be finished so that it doesn’t interfere with any other.

In addition, see that your workletter allows you enough time to review design drawings and other documents you must approve. A landlord’s delay in delivering the documents shouldn’t cut into your allotted time.

Force majeure, or excusable delay, is supposed to cover events the landlord can’t control – flood, strikes, hurricane. Be sure that it applies only to those few situations the landlord can’t reasonably be held responsible for.

Otherwise, this becomes a catchall that excuses your landlord from managing the work you’ve hired it to do.

Your remedy if there’s an excusable delay? Landlords normally propose that no matter how long the delay, or how much it costs you to make alternative arrangements, you can’t break the contract. You can only push back the date you start paying rent. In other words, you have to wait around. But you need assurance that your business will continue with minimal interruption. Protect yourself with a specific walk date. Except for delays you cause, if your space isn’t ready after a reasonable time, you should have the right to terminate your lease and go elsewhere – without having to pay rent on two leases.

With or without a workletter, tenants often get an interiors allowance for the initial fit-up work: landlords provide a credit of so many dollars per square foot or they provide certain standard items like electrical outlets, doors, latchsets, lighting fixtures, plasterboard, and carpet.

Most tenants prefer better quality or simply need something other than the building standard – but, unless you negotiate it, your lease may permit no credit for items you don’t want.

The tenant portion of fit-up can quickly reach $40 or $50 a foot for interiors that aren’t lavish. So refuse a clause that obliges you to use resident contractors because you’ll likely get a better price by bidding out work to general contractors.

Make sure you understand precisely how the lease distinguishes between "base building," which the landlord pays for, and your premises, which you pay for. Otherwise, you may find you’re obligated to pay for expensive wiring, duct work, etc., you hadn’t planned on.