What are Leasehold Improvements?
Leasehold Improvements are construction related work within demising walls* of the tenant’s suite for the exclusive benefit of the tenant. Further definitions are included in the tenant’s lease**.
*A demising wall is a wall that separate a tenant’s suite from another tenant’s suite, or separate common areas in a building.
**A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified time duration.
What is a Design & Construction Manual?
The Design & Construction Manual is a document created to guide tenants and their project team with leasehold improvement projects within a specific building or property. This document forms part of the tenant’s Lease Agreement. In an instance where inconsistencies occur, the terms defined in the Lease Agreement take precedence over the Design & Construction Manual.
The Design & Construction Manual forms the basis for landlord approval of any Leasehold Improvements works. Any contravention of the provisions in the Manual can constitute a breach of the tenant’s commitments under the tenant’s Lease, resulting in tenant work rejection, re-submission, fines and other rights entitled to be exercised by the landlord.
Below are typical sections found in a Design & Construction Manual.
1 – Design Guideline & Building Standards
Commercial properties typically have specific design requirements and base building standards for proposed build-outs to maintain construction and design consistency throughout the property. Design requirements include architectural finishes, tenant entrance doors and frames, window blinds, and signage to ensure consistency of aesthetics. Building standards include construction methods to tie into the base building systems to ensure the new system is fully compatible and integrated with the established systems. Base building systems include mechanical, electrical, structural, communications, plumbing, and fire protection systems that serves the building.
2 – Approval Procedure & Requirements
The landlord establishes specific approval procedures and requirements for the tenants to abide by. All Leasehold Improvements are to be reviewed and approved by the landlord prior to their commencement. Note that the landlord’s review is limited to the impact on the base building systems. The tenants are to ensure that all construction work complies with all applicable laws, by-laws, codes and regulations in addition to the provisions outlined in the Design & Construction Manual.
The tenant’s project team is to demonstrate that their Leasehold Improvement do not cause negative impacts to the performance of the base building systems or other tenant’s systems. Therefore, it is the Tenant project team’s responsibility to thoroughly understand the existing skeleton of the property they are working in and all requirements imposed by the landlord. The project team should visit the site to inspect and verify all site conditions prior to the commencement of design work.
The Tenant is advised to involve the landlord as early in the process as possible to capture all relevant requirements and answer any questions to minimize schedule delay and cost implications. Often times, design coordination meetings are held between the tenant project team and the landlord as soon as the lease is finalized.
3 – Key Building Contacts, Preferred Consultants, and Trades
One of the key contacts provided in the manual is the landlord’s project manager. The role of a landlord’s project manager is to provide guidance and assistance to the tenant’s project team during the design, construction, close-out processes. The appointed individual will act as a liaison between the landlord, the tenant, and the tenant’s project team. Therefore it is to the tenant’s advantage to engage this individual early on during the design process to answer any questions which can affect the design and construction of any Leasehold Improvement work going forward.
Generally speaking, the tenants will engage their own contractors to carry out the Leasehold Improvements. The manual lists out specific requirements regarding approved trades who can work in the building. The landlord will prefer trades who are familiar with the base building systems and construction procedures. The landlord will also mandate specific base building contractors when carrying out specific base building related works. Other requirements could include registration with WSIB, Union, and Contractor Check. It is important to thoroughly review this section as the requirements are tailored to suit the need of the landlord and the property.
4- Construction Procedures
The project team must ensure that all construction work is carried out in accordance with the landlord approved drawings. They must also ensure that all construction work complies with all applicable laws, by-laws, codes and regulations.
There are many steps that go into the various scopes of work within a project. Each Leasehold Improvement will differ in scope. The manual will attempt to outline detailed requirements for all typical construction activities such as:
- Project Start-Up
- Site Protection
- Systems Shut Down (HVAC, Water, Building Automation System, Electrical)
- Access Panels, Signage, Hoarding
- Elevator Protections & Bookings
- Modification of Base Building Systems
- Maglock/Electromagnetic Locking Devices Additions & Modifications
- Drilling, Cutting, and X-raying
- Project Close-Out
It is recommended the project team reviews all applicable construction activities.
Tenant Leasehold Improvements can be challenging without the right forethought and considerations. The Design & Construction manual is created to help the tenants work through the renovation of a commercial space and highlights any pressing issues to be aware of.
Leave me a comment if you have general questions regarding the Design & Construction Manual for Tenant Improvements.