TENANT IMPROVEMENT WORK LETTER DRAFTING PROMPT

You are an experienced commercial real estate attorney tasked with drafting a comprehensive Tenant Improvement Work Letter (also known as a "Work Letter" or "TI Work Letter") to be attached as an exhibit to a commercial lease agreement. This document will govern the construction, approval, and payment process for improvements to be made to leased premises.

DOCUMENT CONTEXT AND PURPOSE

Draft a Tenant Improvement Work Letter that serves as a binding exhibit to a commercial lease agreement. This Work Letter must establish clear procedures for planning, approving, constructing, and paying for tenant improvements while protecting both landlord and tenant interests. The document should address the entire lifecycle of the improvement process, from initial design through final completion and payment. Ensure the Work Letter integrates seamlessly with the main lease agreement and references specific lease provisions where appropriate.

HEADER AND INTRODUCTORY PROVISIONS

Begin the document with a clear title identifying it as a "WORK LETTER" or "TENANT WORK LETTER" and establish its relationship to the underlying lease. Include a reference paragraph that identifies the lease by date, parties (landlord and tenant with full legal names), and the specific premises being improved. State explicitly that this Work Letter is incorporated into and made part of the lease, and that in the event of any conflict between the Work Letter and the lease, specify which document controls. Include the effective date of the Work Letter and ensure it aligns with the lease execution date.

DEFINITIONS SECTION

Provide precise definitions for all key terms used throughout the Work Letter. Define "Tenant Improvements" or "TI Work" as the improvements, alterations, installations, and construction work to be performed in the premises by or on behalf of Tenant in accordance with the Approved Plans, distinguishing these from landlord's base building work if applicable. Define "Tenant Improvement Allowance" or "TI Allowance" with the specific dollar amount (both total and per-square-foot calculation) that Landlord will contribute toward the cost of Tenant Improvements, and specify whether this is a one-time allowance or may be replenished under certain conditions.

Define "Approved Plans" as the final space plan, construction drawings, and specifications approved in writing by Landlord for the Tenant Improvements. Define "Substantial Completion" with reference to applicable building codes and industry standards, typically meaning the Tenant Improvements are sufficiently complete to allow Tenant to occupy and use the premises for their intended purpose, with only minor punch list items remaining. Include definitions for "Hard Costs" (direct construction costs including labor and materials) and "Soft Costs" (indirect costs such as architectural fees, engineering fees, permits, and project management), and specify which categories are eligible for reimbursement from the TI Allowance.

DESIGN AND APPROVAL PROCESS

Establish a detailed timeline and procedure for Tenant's preparation and submission of design documents. Require Tenant to engage licensed architects and engineers to prepare a preliminary space plan showing the proposed layout, followed by detailed construction documents including architectural, mechanical, electrical, and plumbing drawings. Specify that Tenant must submit these plans to Landlord for review and approval, and establish reasonable timeframes for Landlord's review (typically 10-15 business days for each submission). State that Landlord's approval shall not be unreasonably withheld, conditioned, or delayed, but may be withheld if the proposed improvements would adversely affect building systems, violate applicable laws or codes, reduce the value of the premises, or conflict with the permitted use under the lease.

Address the revision process by requiring Tenant to incorporate Landlord's comments and resubmit revised plans, with subsequent review periods for each resubmission. Specify that no construction may commence until Landlord has provided written approval of the final plans, and that any changes to Approved Plans during construction must receive prior written approval from Landlord through a formal change order process. Include provisions addressing delays in the approval process and whether such delays will extend Tenant's deadline for substantial completion or the rent commencement date.

PERMITTING AND REGULATORY COMPLIANCE

Allocate responsibility for obtaining all necessary governmental permits, licenses, and approvals required for the Tenant Improvements. Typically, assign this responsibility to Tenant, requiring Tenant to apply for and obtain all building permits, certificates of occupancy, and other regulatory approvals at Tenant's sole cost and expense. Require Tenant to provide Landlord with copies of all permits before commencing construction and copies of final approvals and certificates of occupancy upon completion. Specify that all Tenant Improvements must comply with applicable building codes, the Americans with Disabilities Act, environmental regulations, and all other federal, state, and local laws and regulations.

Address the responsibility for ensuring compliance with Landlord's insurance requirements and any specific building standards or construction rules and regulations. Require Tenant's contractors to maintain specified levels of commercial general liability insurance, workers' compensation insurance, and builder's risk insurance, with Landlord named as an additional insured. Establish that Tenant must provide certificates of insurance before commencing any work in the premises.

CONSTRUCTION PROVISIONS

Specify who will perform the construction work, whether Tenant will serve as general contractor, Landlord will construct the improvements on Tenant's behalf, or Tenant must select from Landlord's approved contractor list. If Tenant is permitted to select contractors, establish pre-qualification requirements including minimum experience levels, financial stability, licensing, and insurance requirements. Require Tenant to submit contractor information to Landlord for approval before executing any construction contracts.

Establish construction standards requiring all work to be performed in a good and workmanlike manner, using new materials of quality equal to or better than building standard, and in compliance with the Approved Plans and all applicable laws. Require Tenant to conduct construction in a manner that minimizes interference with other tenants in the building and Landlord's operations, including restrictions on working hours, noise levels, and use of common areas. Address the storage of materials, disposal of debris, and maintenance of construction site safety and cleanliness.

Include provisions for Landlord's right to inspect the work in progress and require Tenant to correct any work that does not conform to the Approved Plans or applicable construction standards. Establish a punch list process for identifying and completing minor items remaining after substantial completion, with a specific timeframe for completion of punch list items (typically 30-60 days). Require Tenant to provide Landlord with as-built drawings, warranties, and operating manuals for all equipment and systems installed as part of the Tenant Improvements.

TENANT IMPROVEMENT ALLOWANCE STRUCTURE

Detail the total amount of the TI Allowance, calculated on a per-square-foot basis for the rentable square footage of the premises. Specify the categories of costs eligible for reimbursement from the TI Allowance, typically including hard costs of construction, architectural and engineering fees, permit fees, and project management costs. Clearly identify any costs that are specifically excluded from TI Allowance eligibility, such as Tenant's furniture, fixtures, equipment, telecommunications cabling, security systems, or costs resulting from changes to Approved Plans requested by Tenant.

Establish whether the TI Allowance is available only for initial improvements or may also be used for subsequent alterations during the lease term. Address the treatment of any unused portion of the TI Allowance, specifying whether it reverts to Landlord, may be credited against rent, or may be taken as a cash payment to Tenant (and if so, under what conditions and timing). If the allowance may be used for rent credit, specify the mechanism and timing for such credit application.

DISBURSEMENT PROCEDURES

Establish a detailed procedure for Tenant to request disbursement of the TI Allowance. Require Tenant to submit written disbursement requests accompanied by supporting documentation including paid invoices from contractors and vendors, conditional and unconditional lien waivers from all contractors, subcontractors, and material suppliers, evidence of payment for all work covered by the disbursement request, and certification that the work has been completed in accordance with the Approved Plans. Specify whether disbursements will be made on a monthly basis as work progresses or in a lump sum upon substantial completion of all Tenant Improvements.

Establish Landlord's right to retain a holdback or retainage (typically 10% of each disbursement) until final completion of all work, receipt of final unconditional lien waivers, and expiration of the lien filing period under applicable law. Provide a reasonable timeframe for Landlord to process disbursement requests (typically 30 days after receipt of complete documentation) and specify the method of payment (whether directly to Tenant or to Tenant's general contractor). Include provisions protecting Landlord from mechanics' liens, requiring Tenant to promptly remove any liens filed against the premises or building and indemnifying Landlord from any claims arising from the Tenant Improvements.

COST OVERRUNS AND ADDITIONAL EXPENSES

Clearly state that Tenant shall be solely responsible for all costs of the Tenant Improvements exceeding the TI Allowance. Require Tenant to pay such excess costs directly to contractors and vendors, or if Landlord is managing construction, to pay Landlord for such excess costs before Landlord is obligated to continue work. Establish that Tenant must demonstrate financial ability to pay estimated excess costs before commencing construction, either through a letter of credit, cash deposit, or other security acceptable to Landlord.

Address the treatment of cost savings if the actual cost of Tenant Improvements is less than the TI Allowance, specifying whether savings revert to Landlord, may be used for additional improvements, or may be credited to Tenant. Include provisions addressing change orders and their impact on costs, requiring Tenant to approve and pay for any cost increases resulting from Tenant-requested changes to the Approved Plans.

TIMELINE AND SUBSTANTIAL COMPLETION

Establish a clear timeline for completion of the Tenant Improvements, including specific deadlines for submission of plans, approval of plans, obtaining permits, commencing construction, and achieving substantial completion. Define the consequences of delays, including whether delays will extend the rent commencement date and under what circumstances. Distinguish between excusable delays (force majeure, Landlord-caused delays, governmental delays) and non-excusable delays (Tenant-caused delays, contractor performance issues).

Require Tenant to provide written notice to Landlord when Tenant believes substantial completion has been achieved, triggering Landlord's inspection and verification. Establish the criteria for determining substantial completion, typically requiring that the premises are ready for Tenant's occupancy and use for the permitted purpose, with only minor punch list items remaining. Specify that the rent commencement date will not be delayed by Tenant's failure to achieve substantial completion by the target date, except for excusable delays.

DEFAULT AND REMEDIES

Address the consequences of Tenant's default under the Work Letter, including failure to complete improvements by required deadlines, failure to pay excess costs, or construction of improvements not in accordance with Approved Plans. Establish Landlord's remedies, which may include the right to complete the work and charge Tenant for costs incurred, the right to terminate the lease, or the right to require Tenant to remove non-conforming improvements and restore the premises. Include cross-default provisions linking defaults under the Work Letter to defaults under the lease.

Specify Tenant's obligations if the lease terminates before completion of the Tenant Improvements, including requirements to remove partially completed work, restore the premises, and reimburse Landlord for any TI Allowance funds already disbursed. Address ownership of the Tenant Improvements upon completion, typically providing that improvements become Landlord's property but remain Tenant's responsibility to maintain during the lease term.

SIGNATURE BLOCKS AND EXECUTION

Conclude with formal signature blocks for both Landlord and Tenant. Include spaces for the full legal name of each party, signature lines for authorized representatives, printed names and titles of signers, and dates of execution. If either party is an entity, include appropriate corporate acknowledgment language and ensure signers have authority to bind their respective entities. Consider including notarization requirements if the Work Letter will be recorded or if required by local practice.

DRAFTING INSTRUCTIONS

Prepare this Work Letter using clear, precise legal language appropriate for a commercial real estate transaction. Maintain consistency with the terms and provisions of the underlying lease agreement, using the same defined terms and cross-referencing relevant lease sections where appropriate. Structure the document with numbered sections and subsections for easy reference. Use active voice and present tense where possible to enhance clarity. Ensure all dollar amounts, square footage calculations, and timeframes are clearly specified and mathematically consistent. Include appropriate integration clauses, amendment procedures, and governing law provisions. Format the document professionally with appropriate headings, spacing, and organization to facilitate review and execution by both parties.