We have previously looked at considerations for an occupier when taking recently refurbished space which can be viewed here. In this blog we are looking at considerations for occupiers when entering into a pre-let agreement of part of a building.
The size of the proposed premises being pre-let along with the number of other final occupiers in the multi-let building will have a bearing on the occupier's influence with the landlord when it comes to agreeing the underlying construction documentation.
A large anchor tenant in a shopping centre taking on several floors would expect to play a significant role in negotiating the construction package, but a tenant taking on a smaller amount of space relative to the overall size of the development will likely have less influence over the process.
Where an occupier is taking on a pre-let of a smaller space, points for an occupier to think about include:
- ensuring that there are obligations on the landlord to procure the works in a good and workmanlike manner and considering whether there should be a list of agreed prohibited materials;
- whether the specification is to be agreed in advance or after the agreement has been entered into. If the former, what variations can the landlord undertake with / without your permission. If the latter, a process for agreeing the specification;
- agreeing a target date for completion of the works and whether damages are payable if the target date is not met. Agreeing under what circumstances the target date can be extended (usually this would link into what extensions are permitted under the building contract) and agreeing an ultimate date by which the parties may terminate the agreement if the works have not been completed;
- what inspection rights may be required during the landlord's works phase and once the works have been completed? Any rights of inspection would likely be caveated by having to observe site security and safety precautions, and not causing any delay to the works;
- agreeing the process for sign off of the works, whether you can make representations and whether you will have reliance / a warranty from the relevant person / entity signing off on the works;
- providing a target area for the landlord to deliver and considering whether minimum and / or maximum tolerance provisions to the target area should be agreed;
- providing for a formal measurement of the property after completion of the works, and whether you should be provided with reliance from the person / entity undertaking the measurement;
- what the process will be for dealing with snagging or other defects found in the works (usually found over the first 12 month period);
- what obligations are required to ensure that any snagging, remedying of defects is undertaken;
- where a pack of tenant / occupier warranties are being provided:
- agreeing who from the professional team you should expect warranties from, for example, the contractor, sub-contractors, those with significant design responsibility including architect, engineers and those having responsibility for monitoring and signing off on the works;
- checking that the underlying construction package, including appointments, building contract, sub-contracts, as well as the warranties together provide adequate rights of recourse against the professional team and contractors for a reasonable period following completion (usually 12 years) and ensuring that you have had sight of the relevant professional indemnity insurance backing up the warranty; and
- checking if there are any product guarantees which should be delivered.
As mentioned above, the facts and circumstances play a large role in determining what it is reasonable for an occupier to request and what a landlord will be willing to agree to.
If you have any queries about this topic, or anything else related to real estate or construction matters, please email Leonie Hall, Gillian Watson, Kate Morrison or your usual Brodies contact.
