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Negotiating the Office Buildout

Real Estate Decisions

Negotiating the Office Buildout

Office build-outs transform a dull office space into a productive work environment. But how does the buildout process work? Who pays for the office buildout and how do you get the best possible deal?

A lot of small business owners are surprised to discover that the space they are buying or leasing includes little more than four walls and a door.

Before the space is usable, it will need to be outfitted with interior walls, design features, and furniture. The process of doing that is called a "build-out", and if you're not prepared for it, it can be a heart-stopping experience.

In some ways it's impossible to describe what a typical build-out looks like since each build-out is tailored to the needs of the business that will inhabit the space.

Even so, there are certain considerations that are common to every build-out scenario and must be taken into account before you sign on the dotted line. At a minimum, here are a few questions you can't afford to leave unanswered.

What improvements need to be made to the space?

Obviously, purchasing or leasing a space "sight unseen" is one the stupidest moves you could make. But even after you have inspected a space, you still need to think about what specific improvements need to be made in order for the space to work for your business.

Simply applying an average square footage build-out cost to the situation isn't enough. Your build-out needs might come in less than the average. On the other hand, your build-out needs might also come out significantly higher than average, leaving you hanging with a property that is less than ideal.

The best way to estimate your build-out expense is to research real figures for the improvements the space will require. Start by designing a layout for the space that includes everything from room design to furniture location.

Then, with the help of experienced contractors and furniture suppliers, compile a budget based on how much the improvements actually cost rather than what you think they should cost.

Who will pay for the improvements?

The cost of an office build-out can be used as a point of negotiation in the lease agreement. It's not reasonable to expect your landlord to bear the expense of purchasing office desks or chairs for the waiting room. However, it may be reasonable to expect the landlord to upgrade the electrical service to accommodate your requirements, add a few walls, and spring for a fresh coat of paint.

The thing to keep in mind is that no one will bring it up unless you ask. The worst thing that can happen is that the landlord says no and the negotiation continues.

Who is responsible for doing the improvements?

If the landlord agrees to shoulder part of the expenses, it's important to determine who is responsible for doing which aspects of the build-out.

For example, if the landlord agrees to pay for electrical upgrades, will he hire an electrician or are you responsible for finding your own electrician? Likewise, you need to determine how the contractor will be paid. In some cases the landlord may agree to pay the contractor directly while others may require you to submit the invoice to the landlord for direct reimbursement or as a lease reduction.

Lastly, you need to consider the timeline. If the landlord agrees to make arrangements for an improvement, you need to nail him down on a date by which the improvement will be complete and get it in writing. Otherwise, you could find yourself leasing space that you can't use due to a procrastinating landlord.