Chapter 4 - § 4.9 • CONDITION OF THE PREMISES

• Jurisdiction: Colorado

§ 4.9 • CONDITION OF THE PREMISES

A lease should do a good job of defining what condition the premises will be in when the landlord delivers possession to the tenant. What the lease should say about the condition of the premises depends on the circumstances, which can range from premises to be built from scratch to "as is," ready to occupy. How much the lease says about the condition of the premises depends accordingly — this clause can be from one sentence to numerous pages. Certain categories of leases deserve separate discussion — build-to-suit leases, space leases in buildings not yet completed, space leases with work letters, and "as-is" deals — although the categories and issues overlap. The starting point, however, is an introduction to tenant finish and how construction obligations are broken out between the landlord and the tenant and how they are paid for in a lease.

§ 4.9.1—Tenant Finish, Landlord's Work, Tenant's Work, and Allowances

Four concepts figure heavily into the process of preparing premises for the tenant's occupancy: "tenant finish," "landlord's work," "tenant's work," and "allowances."

Tenant Finish

"Tenant finish" is the term used to describe the improvements that are made to the premises to make them suitable for a specific tenant's use in its business. The building itself is often referred to as the core and shell. The core and shell includes the floor(s), the outer walls (sometimes referred to as the "skin"), the roof, the exterior windows and doors, the elevators (if the building has one or more), and the basic building systems (water lines, waste-water lines, electrical wiring, life safety systems (sprinkler systems and alarms), HVAC, and usually, today, conduits for telecommunications). In an industrial building, the building systems may be more limited. For a tenant who leases only part of a floor, demising walls are added. All additional interior improvements are tenant finish.

Tenant finish is unique to the tenant (although it may be generic enough to be usable by many different tenants), and includes the interior layout of the premises, where the walls and doors are, the lighting, the electrical outlets, supplementary HVAC (the basic HVAC usually being part of the basic building systems), the bathrooms (for a full-floor tenant), any kitchens (with the associated plumbing), any raised floors for computer rooms, and any built-in furniture or fixtures (such as a reception desk, secretarial carrels in an office, counters and bars in a restaurant, and the like).

The concept of tenant finish may appear in several places in a lease. In many leases, the core and shell and basic building systems are insured from fire and other damage or destruction by the landlord, while the tenant finish is insured by the tenant. If there is a casualty loss, the landlord is responsible only for repairing or restoring what it has insured; the tenant finish must be repaired and restored by the tenant (regardless of whether it was initially the landlord's work or tenant's work). Maintenance and repair obligations are sometimes divided between core and shell and basic building systems, which are the landlord's responsibility, and the tenant finish, which is the tenant's obligation to maintain and repair. The right of a tenant to make alterations and improvements is often limited to the tenant finish; the...