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                            Issues Related to
                 Commercial Property Leases

Provisions Related to Build-Out of Leased Space

The following are several issues that relate to the build-out and
remodeling of the commercial leased space that may be done
by the landlord or the tenant prior to the tenant commencing
operations within the space.

- Work to be Done by Landlord.  The work that landlord will
have to perform before tenant takes possession of a leased
space should be very clearly described in the lease.  The
landlord may want to get a written acknowledgment from the
tenant that landlord’s work has been properly done and is
acceptable.  If a tenant is asked for such a written
acknowledgment they obviously should inspect all of landlord’s
work carefully or have someone who is qualified inspect the
work before signing such an acknowledgment.

- Dividing a Leased Space.  If a landlord will be dividing an
existing leased space, a local architect who is familiar with
applicable building codes should be consulted.  There are many
aspects of building code that must be considered when dividing
a commercial space: is a fire rated wall required, are fire rated
doors required, do all portions of the leased space need to be
within a certain distance of an exit to satisfy safety codes, will
the spaces require fire sprinklers, as well as the implication of
the Americans with Disabilities Act requirements.

- Work to be Done by Tenant.  The work that tenant must
perform within the leased space should also be clearly
described in the lease.  Because the building ultimately is
owned by the landlord and the improvements will often become
part of landlord’s building, landlord may want to  reserve the
right to inspect work done by the tenant, especially if it could put
the property at risk for damage such as with electrical work or
plumbing work.

There should also be a definitive statement in the lease as to
what improvements the tenant has installed or constructed
should remain with the leased premised after the tenant vacates
the leased premises and what fixtures and improvements the
tenant will be permitted to remove when they vacate the leased
premises.

- Liens and Notices of Commencement.  The landlord should
include in their lease a statement that the tenant and work within
the leased space done on behalf of the tenant will not subject
the property to mechanics liens.  This will help prevent liens
from attaching to the landlord’s property and affecting the title to
the property.  

All leases within a project should have the same language in
regards to liens because before any tenants begin work within
their leased space, the landlord should record in the public
records a notice that states that the tenants are only renting the
space, they do not own the space, and therefore tenant’s work
can not be the impetus for liens attaching to the real property.  
This notice includes the lien language from the leases (which is
why all the leases within a project should have the same lien
language and provisions).

Further, the landlord should not execute a notice of
commencement for tenant work.  Contractors will sometimes
approach landlords and request that they execute the notice of
commencement because they are the owners of the property
but this exposes the landlord’s property to attachment by liens
even if the above referenced notice has been properly recorded
in the Public Records.  Notices of commencement can be
executed by tenants and such notices should only describe the
tenant’s improvements that are to be constructed or installed
and the notice should describe tenant’s interest in the real
property as a leasehold interest (as opposed to fee simple).

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Law Office of
Craig W. Little, P.A.