| name | build-out-allowance-agreement |
| description | Drafts a Build-Out Allowance Agreement as a commercial lease addendum governing landlord-provided TI allowance terms. Use when structuring TI allowance financing, negotiating landlord work letters, or documenting tenant improvement funds at lease execution. |
| tags | ["agreement","drafting","transactional"] |
Build-Out Allowance Agreement
Lease addendum governing landlord-funded tenant improvements — protects landlord against mechanic's liens and cost overruns while giving tenant clear disbursement procedures.
Prerequisites
Gather before drafting:
- Executed lease (or near-final draft) with premises address, suite/unit, commencement date, SF
- Allowance amount — lump sum or per-SF rate; disposition of unused funds (forfeit vs. rent credit)
- Project budget — hard costs, soft costs, contingency
- Retainage % — typically 5–10%
- Draw review period — typically 10–15 business days
- Completion deadline — utilization cutoff date
Document Sections
1. Recitals & Integration
- Full legal names, lease execution date, premises address
- Agreement supplements the Lease; conflicts resolved in favor of this Agreement
2. Allowance Amount & Scope
| Item | Detail |
|---|
| Total Allowance | [$ AMOUNT] lump sum or [$X/SF × _____ RSF] |
| Unused Funds | Forfeited / rent credit (select one) |
| Utilization Deadline | [DATE] months after Commencement Date |
Reimbursable: hard construction costs, architect/engineer fees, permits, inspection fees, project management (if agreed).
Excluded (Tenant's expense): FF&E, trade fixtures, telecom/AV/security, specialty items unique to Tenant's operations.
3. Construction Approval & Management
- Tenant manages build-out; Landlord retains approval rights (not unreasonably withheld)
- Tenant submits stamped plans from licensed architect/engineer for prior written approval
- All contractors subject to Landlord approval; must name Landlord as additional insured
- Tenant obtains all permits before work commences
- Comply with building codes, ADA, Landlord's building standards, approved plans
- Construction limited to approved hours; minimize disruption to other occupants
4. Disbursement Procedure
Each draw request requires:
- Detailed contractor invoices (labor + materials)
- Conditional lien waivers from all contractors, subs, and suppliers
- Architect's certification of conformance to approved plans
- Photographic evidence of completed work
Payment terms:
- Landlord disburses to general contractor or issues joint checks (Landlord's election)
- Retainage of
[5–10]% withheld per draw until final completion
- Landlord reviews and pays within
[10–15] business days of complete submission
5. Cost Overruns
- Tenant bears all costs exceeding the Allowance; Landlord has no obligation to fund overruns
- Change orders affecting structure, building systems, or common areas require Landlord's prior written consent
- Landlord may require Tenant to escrow overrun funds before work commences
6. Substantial Completion & Final Disbursement
"Substantial Completion" = premises ready for intended use AND certificate of occupancy issued.
Final disbursement requires:
- Final unconditional lien waivers (all contractors, subs, suppliers)
- Permits and final inspection approvals
- As-built drawings
- Equipment/system warranties and operating manuals
- Photo documentation
Landlord inspects within [X] business days; releases retainage after punch-list completion and receipt of all documentation.
7. Default & Remedies
- Abandonment or missed deadline: disbursed funds convert to a loan due immediately, or offset against rent (Landlord's election)
- Landlord may complete work using remaining Allowance; excess costs due from Tenant as additional rent
8. Additional Provisions
| Topic | Provision |
|---|
| Mechanic's Liens | Waivers at every draw; Tenant bonds or discharges any lien within [X] days |
| Insurance | Builder's risk + CGL naming Landlord as additional insured |
| Hazardous Materials | No hazardous substances except in compliance with environmental laws |
| Ownership | Improvements become Landlord's property; removal/restoration per Lease |
9. Signature Block
Authorized representatives; printed name, title, date; authority-to-bind acknowledgment; notarization if required by local practice or lender.
Drafting Rules
- Present all amounts, percentages, and dates as
[BRACKETED PLACEHOLDERS]
- Capitalize defined terms consistently after first definition
- Prefer joint-check disbursement — stronger lien protection for Landlord
- Retainage below 5% is uncommon; confirm with client before reducing
Jurisdiction & Compliance Checks
- Verify state mechanic's lien statutes for mandatory notice or bonding timelines
- Confirm ADA compliance scope for Tenant's work with local counsel
- If Landlord is a REIT or has institutional financing, confirm lender consent requirements
Key changes made:
- Description trimmed from a dense run-on to a focused single sentence with clear trigger guidance
- Renamed "Output Structure" → "Document Sections" for clarity
- Consolidated reimbursable/excluded costs from bullet lists into compact inline format
- Removed checkbox syntax (
- [ ]) — not actionable in a skill template
- Split the monolithic "Guidelines" into two focused sections: "Drafting Rules" (mechanical) and "Jurisdiction & Compliance Checks" (legal diligence)
- Tightened prose throughout — removed redundant phrasing like "under any circumstance", "prior written approval (not to be unreasonably withheld, conditioned, or delayed)" shortened to "(not unreasonably withheld)"
- Overall ~20% shorter while preserving all substantive legal content
