Many offices, retail buildings, or restaurants consist of nothing more than four walls and a door when a prospective tenant first walks through. A tenant build-out is where this raw space is finished to meet that tenant’s specific needs. But build-outs bring on an array of questions. What type of improvements will be needed? Who will pay for these improvements – the landlord or tenant? And, lastly, who will be in charge of getting the work finished? In today’s blog post, H.W. Holmes, Inc. – Los Angeles tenant buildout contractors – take a closer look at who will manage a tenant build-out and pros and cons of each option.
There are two common types of tenant buildouts. A tenant managed build and a landlord managed build. Turnkey – a complete buildout of a space to a tenant’s exact specifications at no additional charge to them – is less common.
Most tenants see a tenant managed build as the most attractive option. However, many landlords won’t offer it. It’s also not the best course of action for every tenant. In fact, there are pros and cons to both options. This isn’t a “one size fits all” scenario. Let’s take a closer look at each option.
TENANT MANAGED BUILDOUT
If you’re considering a DIY approach to managing a build, you must first consider whether or not you’re fit to take on this responsibility. If you’re not experienced working with commercial contractors on time-sensitive buildouts, you might want to reconsider a tenant managed build.
However, if this isn’t your first rodeo, and you’ve established working relationships and trust with local contractors, then a tenant managed build might be ideal for you. You’ll be choosing the contractor. The final say in everything is yours. Overseeing and assessing construction processes and the project’s progress essentially becomes another job for you.
If such tasks aren’t within your wheelhouse or area of expertise, you might want to reconsider a tenant managed build-out. That said, if you know an experienced architect, engineer, and contractor to add to your team, they’ll make your first time much easier. You should also make sure the commercial construction company you choose has a construction manager (CM) or you can hire one directly to take the weight of that burden off your shoulders.
PROS OF TENANT MANAGED BUILDOUT: You have direct control when it comes to selecting the contractors. This also means full transparency when it comes to pricing. You don’t have to worry about whether or not the landlord has a mutually beneficial relationship with the contractor where corners are being cut and you’re being told a price that’s higher than the actual cost of materials and labor.
Additionally, this option means you have a higher level of engagement in the process. Since you’re dealing directly with the contractor and reviewing their day to day work and progress, you can better ensure the space is being built exactly how you want and the project’s on schedule.
CONS OF A TENANT MANAGED BUILDOUT: People are busy. Especially those running a business. Managing a construction project is time-consuming. It will take you away from core business matters. Either your day-to-day business operations will suffer or how effectively you’re managing the build-out will.
You should understand that the lease’s rent commencement date might as well be set in stone. There’s generally no room for an extension unless the landlord is to blame. By managing a tenant buildout yourself, you’re fully accepting responsibility for any project delays. This could result in you having to pay rent before the space is completed or move-in ready. The landlord may also be slow to disburse allowance dollars, which means you might not be able to pay your contractor in a timely manner. This creates understandable disharmony between you and the contractor which results in added stress and potentially more project delays.
LANDLORD MANAGED BUILDOUT
Let’s take away one common misconception right away. While a landlord managed tenant buildout puts the burden of the build and its scheduling on the landlord, it doesn’t remove the tenant from all engagement. A tenant’s timely input and decision-making are still needed for the architect, engineer, and contractor to move forward with construction.
PROS OF LANDLORD MANAGED TENANT BUILDOUT: There are several tenant-side advantages in a landlord managed build. First, if the renovations aren’t finished by the lease’s proposed rent commencement date, the landlord is responsible. They were managing the buildout. They failed to deliver by the date in your agreement. Barring any tenant-induced delays, the rent date must be pushed back until the space can be delivered as promised.
It can also be assumed that the landlord has regularly used the contractors selected. They’ve already been vetted and their work is vouched for. They may even be well-familiar with the building and its systems allowing for timelier more efficient work.
CONS OF LANDLORD MANAGED TENANT BUILDOUT: The most obvious disadvantage to the tenant is the lost control of the build process. The tenant isn’t involved in choosing the contractor. You might not get the best contractor or the best pricing from who the landlord chooses. Additionally, landlords will typically charge a fee for construction management as high as 4% or more of the total construction cost. This fee is often pocketed by the landlord.
NEED A TENANT BUILDOUT CONTRACTOR IN LOS ANGELES?
Whether you’re a landlord or tenant, you need a commercial construction contractor efficient with tenant buildouts in the Los Angeles area. H.W. Holmes, Inc. has provided tenant build-out services to landlords and tenants throughout Los Angeles, Ventura, and Santa Barabara counties for nearly three decades. Contact us today at (805) 383-9929 to discuss your project and schedule a free estimate. Click here to learn more about tenant buildouts vs. landlord buildouts.