Landlord vs. Tenant-Controlled Build-Outs: Navigating the Best Path for Your Project
In the dynamic realm of construction projects, understanding the distinction between a landlord buildout and a tenant-controlled buildout is crucial.
Let’s dissect the nuances of both strategies and consider strategic advice for informed decision-making.
Understanding Landlord-Led Build-Outs
Landlord-led build-outs – where the property owner oversees the construction or renovation process – offer distinct advantages.
This approach often streamlines the project, as the landlord is typically well-versed in the building's specifications and regulations.
It can be cost-effective for tenants since landlords might absorb a significant portion of the build-out expenses.
The landlord will handle the bidding and selection of a general contractor and take the burden of negotiating all the contract terms and conditions.
But this process does have its disadvantages.
The landlord team is not focused on the nuances and needs of a tenant. They’re typically going to seek to build out a generic space as fast as possible and not take into consideration or give proper time to make sure that the full needs of the tenant are met.
This method may limit the tenant's control over the design and customization. This can potentially lead to compromises in achieving the desired aesthetic or functionality. Any customizations tend to come at upgrade costs – which add up quickly.
Often the exclusion of these details becomes a problem in the middle of the buildout when the tenant realizes that certain elements (such as access control, AV, final furniture selections, equipment needs, etc.) are not going to come out correctly unless there are revisions to plans and change orders to add/change the scope.
Even though it wasn’t necessarily the tenant's fault for not knowing what they didn’t know, this causes a “tenant delay” where the landlord can start charging rent even when the buildout is incomplete.
Exploring Tenant-Controlled Build-Outs
In contrast, tenant-controlled build-outs provide a higher degree of customization and often result in a better experience for the tenant IF they have an owner’s rep project manager leading them through the process.
Tenants get to tailor the space to fit their specific needs and preferences. This autonomy empowers tenants to create an environment that aligns perfectly with their brand identity and operational requirements.
The tenant controls the schedule and the budget, often utilizing a tenant improvement allowance to pay for a large portion of the work.
While this approach offers greater flexibility, it also places the responsibility of managing the budget, timeline, and compliance with the tenant. This can be challenging without expert guidance, like from an owner’s representative.
Comparative Analysis
The decision between a landlord-led or tenant-controlled build-out hinges on several factors, such as:
Desired level of control
Project complexity
Landlord-led build-outs are often more streamlined and less burdensome for the tenant but may offer less customization.
Conversely, tenant-controlled build-outs offer greater freedom but require more involvement and oversight from the tenant.
The Common Area recently supported a law firm through a landlord buildout process and mitigated several major issues.
We were brought in by the law firm after the buildout plans were already completed and in for permitting.
We first noticed several issues:
The client had not yet started shopping for furniture.
The buildout plans didn’t include the correct scope assumptions for security/access control and IT cabling requirements for their video conferencing systems.
Once we introduced them to furniture vendors and better understood the layouts of each private office and conference room, we discovered that the power and data locations were planned for the wrong walls. We also caught changes that were needed to accommodate AV equipment and security.
This progress on site stopped while the drawings were revised and submitted for a permit revision.
Ultimately, fixing these issues with the landlord buildout created a significant delay and put the tenant at risk of needing to extend their lease at their existing office for another two months. Additionally, they could incur holdover costs, which are usually 150% of their normal monthly rent costs.
In the end, they opted to vacate after one month of holdover and start working out of a temp office while the buildout was completed. This caused a major disruption to their operations during a time when they had important cases in trial.
If this had been a tenant-controlled buildout OR if they had brought us earlier in as their owner’s representative, we would have ensured these mistakes were not made during the landlord buildout process.
Balancing Control and Convenience in Construction Choices
Choosing between a landlord-led and tenant-controlled build-out depends on the specific needs and capabilities of the tenant.
While landlord-led projects offer ease and potential cost savings, tenant-controlled build-outs allow for greater customization.
The key is to carefully weigh the pros and cons while considering the unique aspects of each project.
The complexities involved in choosing the right build-out strategy underscore the need for expert guidance.
The Common Area stands ready to assist clients in navigating these choices, offering professional advice and comprehensive owner’s representative services.
Whether it's a landlord-led or tenant-controlled build-out, our expertise ensures a strategic approach to project facilitation.
For professional owner’s representative assistance in your construction project, reach out to The Common Area, where strategic planning and expert oversight pave the way for successful project outcomes.