Build Out Allowance Agreement

---
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