Work Letters & TI Allowances
The work letter is the part of your lease that decides who builds what and who pays for it. Nearly every construction argument that follows gets settled by reading that document.
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Overview
Work Letters & TI Allowances
A work letter is usually an exhibit rather than a page in the lease body, and it is often the least negotiated part of a deal people spend weeks arguing about rent on. It defines the landlord’s work, your work, the delivery date, the building standard specification, the improvement allowance and how it gets paid, the approval process, and any fee the landlord charges for overseeing your project.
The most misunderstood point is that an allowance is not money handed over at signing. It is a reimbursement, released against documents, usually after the work is complete or in progress draws tied to conditions. You or your contractor finance the build until the draw arrives. Anyone planning a build-out should know the draw schedule before the first subcontractor is asked to start.
The things that actually decide this job
How the allowance actually gets paid
Look for the amount per rentable square foot, whether draws are progressive or a single payment at completion, and exactly what documents are required: pay applications, invoices, conditional and unconditional lien waivers, permits, inspection sign-offs, the certificate of occupancy and as-built drawings. Then find the expiration. Allowances routinely carry a deadline after which unused funds are forfeited, and a slow approval process can consume that window.
Building standard means a specific list
The specification defines what the landlord considers standard: ceiling type, door and frame style, hardware, light fixture type and count, HVAC capacity per square foot, and finish allowances. Anything above that comes out of your pocket first. Get the list with counts and models rather than adjectives, because standard is a defined term in your lease and vague language always resolves in favour of whoever wrote it.
The approval loop and its clock
Note how many business days the landlord has to review your plans, what happens if they miss the deadline, whether silence means approval, and how many rounds are allowed. Check whether they require their engineer of record or specified vendors for life safety, roof and controls work. Then find the construction management fee, its percentage, whether it is charged on your whole project cost, and whether it comes out of the allowance.
Delivery, substantial completion and rent
Rent typically starts at substantial completion or on a fixed date, whichever comes first. Read who declares substantial completion, whether a certificate of occupancy is required for it, and how punch list items are treated. Then read the tenant-delay clause, which lets the landlord charge days back to you and start rent early. Delay definitions that include slow decisions or unapproved changes deserve a notice requirement before the clock runs.
Practical considerations
Additional amortized allowance is a loan
When the allowance falls short, landlords often offer extra funding amortized into rent over the term at a stated interest rate. That is financing, and it should be compared with your own bank or equipment financing on rate, term and what happens if you assign or terminate early. It also raises the effective rent used in any future renewal negotiation, so know the number rather than accepting a convenient monthly figure.
Restoration and removal at the end
Many leases require the tenant to remove specialty improvements at expiration: internal stairs, vaults, raised floors, walk-in coolers, clinical or laboratory plumbing, supplemental cooling units. That obligation can arrive years later as an unbudgeted demolition bill. The remedy is simple and best handled at signing: attach the approved plans and get a written statement identifying what may remain and what must be removed.
Credit for what is already there
In a second-generation space, the improvements already in place have value. A smaller allowance in a well-delivered suite frequently beats a larger allowance in a cold shell, because the shell consumes the difference before you reach your first finish. Negotiate what stays, what the landlord repairs before delivery, and what condition mechanical, electrical and restroom systems must be in on the delivery date, in writing.
Get the disbursement checklist to your contractor
The draw requirements are a construction administration task, not a formality. Your contractor needs to know at contract signing what backup, waiver forms, photographs and inspection documents the landlord requires with each application. A single missing unconditional waiver or an outstanding inspection sign-off can hold an entire payment, which stalls subcontractors and turns a paperwork problem into a schedule problem.
At a glance
| Work letter term | What it usually means | What to pin down |
|---|---|---|
| Improvement allowance | Dollars per square foot the landlord reimburses | Draw timing, required documents, expiration date |
| Building standard | The landlord’s baseline specification | Actual counts and models, not descriptive words |
| Landlord’s work | Items delivered before your work begins | A dated milestone and a remedy if it is late |
| Construction management fee | A percentage charged for oversight | Whether it comes from the allowance; cap and exclusions |
| Substantial completion | The trigger for rent to start | Who declares it, punch list treatment, occupancy requirement |
| Tenant delay | Days charged back to you | Written notice before any day is counted |
Common questions
Can unused allowance be taken as free rent or cash?
Sometimes, if you negotiate it before signing. Some landlords will convert a portion of an unused allowance into rent abatement, often at less than a dollar for dollar, and a smaller number will apply it to soft costs such as design fees, cabling, furniture or moving expenses. Most will simply keep it. Because this is a signing-stage negotiation and not a construction-stage request, decide during lease review whether flexibility on soft costs matters more to you than the headline allowance number.
Do I have to use the landlord’s contractor?
It depends what the work letter says. Some buildings require their contractor for everything, some require approval of yours, and many mandate specific vendors only for life safety, roofing, controls and anything touching base building systems, which is a reasonable position because those systems carry warranties and monitoring. A common negotiated outcome is your contractor for the build, their vendors for those specific trades, with approval not to be unreasonably withheld and a stated response time.
When does the allowance actually reach my contractor?
Typically after the work is complete and the document package is accepted, though progress draws are negotiable and worth asking for on larger builds. Plan the cash flow rather than assuming: your contractor bills you, you pay, then you submit for reimbursement and wait for the landlord’s review cycle. That gap can run weeks. Agree with your contractor at contract signing how it will be handled, because a build financed on an assumption tends to stop when the assumption fails.
What is a fair construction management fee?
It is negotiable, and the range is narrower than the arguments about it suggest. What matters more than the percentage is the base it is charged on and what it covers. Push to exclude your own furniture, cabling, equipment and any vendor the landlord did not oversee, and consider a dollar cap on larger projects. Also ask what you receive for the fee. If the landlord provides genuine plan review, inspection coordination and access management, it earns something.
The allowance will not cover my build. What are the options?
Four, usually. Reduce scope by cutting enclosed rooms and above-standard finishes, which moves the number fastest. Take an amortized additional allowance and treat it as financing to compare. Phase the build, completing what you need to open and deferring the rest to a later permit. Or look for a better-delivered space where less construction is required, since a second-generation suite with a usable layout can cost less overall than a shell with a larger allowance attached.
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