Before Signing That Lease: The Phase That Makes or Breaks Your Project

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Before Signing That Lease: The Phase That Makes or Breaks Your Project

At stok, we consider Project Managers to be an integral addition to the holy “AEC” trinity of every project team. As such, stok’s seasoned Project Management team is sharing some words of wisdom for every stage in a project. First, pre-lease. This phase encompasses due diligence, lease negotiation, Owner’s Project Requirements (OPR), and budget development. Set your project up for success with the following pre-lease considerations:

1. Establish goals before starting your property search.

Instead of trying to recreate your current space in a new location, first ask, what is your vision for the future? How can your new space and program help you achieve your goals? Let these goals help guide your property search.

2. Create an Owner’s Project Requirements (OPR) document.

This is an incredibly valuable way to kick off a project. The OPR should outline your goals, as well as metrics for achieving them, and will serve as a reference guide for key decisions throughout your project. This fundamental document will help create consensus and buy in within your organization by memorializing and centralizing project goals from the get-go.

3. Educate yourself on current construction costs.

Although initial first-time construction costs may be a drop in the bucket compared to the outlay in rent over the term of your lease, be informed about what your tenant improvement may cost in order to negotiate your tenant improvement allowance. Construction is by far the largest percentage of total budget costs, and understanding your anticipated spend before you sign a deal allows for a more informed decision.

4. Include a 10% owners contingency on total project costs.

This is a critical part of every project’s budget. This risk management measure helps absorb the impacts of project uncertainty and cover unexpected costs during construction. The percent value of this contingency will reduce as the project design progresses toward construction. Like any form of insurance, you don’t need it until you do…

5. Survey the site thoroughly when evaluating potential properties.

Verify existing infrastructure, utilities, and equipment. Ask, is there a dedicated riser for communications cabling? Are there mechanical or electrical capacity constraints? Consider experts you may hire to provide an assessment prior to executing a lease.

6. Engage a design professional to provide a code and zoning analysis.

The early advise from an Architect, City Planner, or Code Specialist can help identify issues that affect project success throughout the design, construction, and operations phases. This limited coordination effort with a potential new partner in the project delivery process can also serve as an early indicator of how that person might fit into your full project team when it comes time to select design team members. Additionally, this analysis will allow you to ensure that your desired use is a permitted use. This will help you more easily navigate permitting and code compliance down the road, setting your project up for success early on.

7. Inquire if as-built base building and/or previous tenant improvement drawings are available.

Ask the landlord for base building as-built drawings. These are used to determine existing building systems and their age, which then inform design and budget feasibility. In addition, inquire if path of travel drawings are available from the landlord’s architect, as potential required accessibility upgrades that occur outside of your tenant space may end up as part of your project costs.

8. Remember that lease terms are paramount.

Therefore, a knowledgeable broker is invaluable! A few key considerations include: How and when is the tenant improvement allowance paid? Who is responsible for non-code compliant items, such as path of travel requirements or accessibility upgrades? Is the time allotted for tenant improvements realistic? Does your lease specify a timeframe for landlord review and approval of drawings? (It should! We recommend 5 days.)

9. Ensure the project manager reviews the work letter and exhibits in your lease.

During lease negotiations you will receive a work letter detailing conditions that affect your build-out and occupancy restrictions and costs. These should not be accepted as-is, but instead be reviewed and negotiated. A Project Manager will help you avoid clauses that are detrimental to desired project outcomes, and support a better tenant / landlord relationship through the duration of your lease.

Want more? Reach out to our Project Management team. We are here to help.