Unanticipated circumstances can significantly raise tenant improvement costs. Time is money. Nothing screws up a timeline or budget like a concealed or unforeseen condition. Some things just can’t be anticipated – even after a seemingly thorough onsite inspection. This is why there’s no such thing as a 100% accurate cost projection. In this blog post, we share some of the more common unexpected conditions known to raise the cost of tenant improvement in CA.
Existing Conditions
There’s simply no way of knowing if the original construction was built exactly per plans and specs, blueprints, and building codes. Time of construction must also be considered. Different local codes would likely apply to a structure built 10 to 20 years ago. Therefore, any deviation from current code regulations is an unforeseen condition that can definitely spike tenant improvement costs. This can range from anything from ADA compliance requirements to sprinkler coverage, life safety device coverage, Title 24 (Building Energy Efficiency) upgrades, etc.
Dry Rot/Decay
Unfortunately, there is no way for a tenant improvement contractor to fully know what lies within a building’s cavities when the initial cost projections are developed. It’s not until the demolition/construction stage has commenced and sections of the building are exposed when the extent of mold or decay comes to light.
Dry rot is a major contributor to the kind of structural damage that can cause a section of a building to collapse. It is commonly found in parts of a building where there’s inadequate drainage or where rainfall has the ability to permeate through cracks and crevices. This moisture becomes trapped. It travels to the inside of wood despite the wood appearing to be dry on the surface. Dry rot can then spread through masonry and other building materials.
Coastal fog and ocean air add to dry rot problems in California. Dry rot needs to be removed quickly once identified. If structural posts and beams have been affected, complete reconstruction may be needed.
In most cases, any presence of dry rot or decay necessitates a change order from the contractor with additional costs. California law states the removal and replacement of decayed material is the contractor’s responsibility. So, not removing and replacing it isn’t something a tenant improvement contractor can really do just to stay within budget. It’s their license, integrity, reputation, and business at risk.
Hazardous Materials
Older commercial buildngs are often infested with hazardous materials. These can be anything from lead paint to asbestos to molds/fungus. The good news is these types of things are very rarely ever factored into the original cost projections.
Concealed Conditions or Hidden Defects Clauses
It’s not a bad idea to have a concealed conditions or hidden defects clause written into any lease agreement.
A concealed conditions agreement makes the contractor stop work to point out the discovered conditions. This enables both the owner and contractor to execute a Change Order for Additional Work.
Verbiage in this secton basically absolves both the contractor and owner from any consequences of an altered bid due to insufficient information. A conventional legal mechanism is put into place where both parties must agree on any change of plans and price adjustment before work proceeds. Just be sure to run such changes by an attorney – especially if new language is inserted into a standard contract form.