Provided by: Jennifer Kirschenbaum, Esq.
August 5, 2021
I am entering into a lease for new office space where I am hiring a contractor to do the buildout and will receive a tenant improvement allowance from the landlord. When should the landlord pay me? They are asking for lien waivers before they will reimburse me any money. Is that normal?
Before reimbursing you for your tenant improvements, a landlord is likely going to condition payment on a few things, including: (I) you are not in default under the lease, (II) you have paid your contractors in full, and (III) you have closed out all building permits. Some landlords go even further and impose other conditions, such as requiring that the premises be open for business or that your rent payments to the Landlord have commenced before tendering payment to you.
If you have not yet paid your contractors in full and there is an amount in dispute, the general contractor or his unpaid subcontractors can file a lien against the building, creating an encumbrance on the property. And if you have not closed out your permits, you cannot get a certificate of occupancy for your space. Both of these scenarios can create a problem for the landlord if they are looking to obtain financing on, or sell, the property as they will need to have clean and clear title to do so.
In general, you will want your lease to allow for multiple reimbursements to you upon submission of paid receipts without the need for lien waivers or building department sign-offs until the final partial payment is due. So, if structured in this manner, a landlord will often agree to reimburse you a portion of your tenant improvement allowance upon submission of paid receipts, but will hold back final payments until you deliver lien waivers from your contractors and building department sign-offs. It is also preferable to try to remove other onerous conditions imposed by the landlord.
In most instances, you can get partial reimbursement within a reasonable period of time, but may have to wait several months for the balance of the reimbursement until the work has been completed.
As always, our real estate team is happy to assist!