How to Lease An Office, Part 2: What Are Tenant Improvements & How Do They Work?

When you enter into a commercial lease the landlord typically delivers to you what is referred to as a shell.   It’s important to note that the language around shell delivery is anything but agreed upon or precise.

A shell can be “cold” in which case you basically get the space delivered to you without HVAC ceilings or wall finishings.  If it’s delivered without lighting it’s a “cold, dark shell.”

The shell can also be a “vanilla shell”, “white box,” or “cold white box.” The important thing to note here is that the tenant is responsible for making the space usable for itself, so the less complete of a shell that’s delivered, the more improvements the tenant will need to make.  In other words, a “white box” will be less costly to “finish out” than a “cold dark shell” as a general rule of thumb.

But don’t make the mistake of relying on a colloquial description of the shell.  In order to understand how much work you will really need to do, you’ll need to examine the lease carefully and understand exactly what you’re getting from the Landlord. This is where an attorney or broker can be especially helpful.

Assuming you now understand how much work you have to do to make your space usable, you will now need to build your team.  The key players you’ll need to assemble are an Architect, a General Contractor (GC) , and depending on the scale of the project, perhaps a construction manager (CM).   

Here’s an admittedly oversimplified view of the TI process, and each firm may have their own approach:

  1. You do an initial concept meeting.  The goal here is usually to get basic vision and requirements out of your head so that the architect can begin designing.  You may do things like look at images of other offices, make lists of well know spaces you like, give input on general finish types you like, and of course, talk budget.

  2. The Architect will present their vision through a conceptual design.  Now you get to look at some options the architect has put together. This step can take many forms, from presenting renderings, to proposed furniture layouts, to simple hand drawn sketches.  You’re going from concept to a specific vision and may have to engage in a few iterations.

  3. The architect will present schematics: Think of this as the penultimate draft.  Perhaps some problems came up in the design process, for example your ideal use of the space conflicts with some of the constraints of the building, or the design you wanted and could afford were two different things.  This is the last chance to resolve such issues before a permit set is put together.

  4. The “permit” set and permit application is prepared. The drawings required to apply for city permits will take some time, typically a couple weeks to put together and submit.  Once submitted each municipality has its own timeline and review process and there is a lot of nuance here. That’s why you hired an expert architect with knowledge of the local process.

  5. You will have a round of comments (or two, or three).  The city may have some comments or questions on the plans submitted.  The architect can often address these comments on their own, but occasionally they’ll need tenant input for material issues.

  6. You’ll get your building permit. With a permit in hand, the general contractor can begin building the space.

  7. TI is ongoing, but in general, you can expect weekly, or at least recurring progress meetings with the general contractor and architect.  The architect is an agent of the tenant and is working throughout the TI process to ensure that the specifications are followed and that the work is in fact completed before the general contractor is paid.

  8. Inspections and conversations with inspectors will occur throughout the process.  When you hire a GC or an Architect, you are often paying for their solid working relationships with the agencies and inspectors they will have to get approval from.  It’s much more efficient to get feedback from an inspector early on problems they think are likely than completing your work only to find out it will have to be re-done.

  9. You will receive a certificate of occupancy (CO),  once you’re inspections have been passed. Now you’re open for business.  Again there is lots of nuance here, for example you can be granted a “stocking” CO so that you can move furniture in a few days before you get your CO and can have people move into the space.

The TI process is a journey and no two projects are identical.  You will deviate from the outline above, but with a good team in your corner, you’ll come out the other end with the space you want.

Read part 1: How to Lease an Office Space