Build-to-Suit Leases: Custom Spaces, Complex Terms
What Is a Build-to-Suit Arrangement?
A build-to-suit (BTS) lease is an arrangement where the landlord constructs or significantly renovates a property to meet the tenant's specific requirements. Unlike a standard lease where you move into an existing space, the landlord builds the property — or extensively modifies it — according to your specifications before you move in.
Build-to-suit is common for companies needing specialized facilities: manufacturing plants, medical offices, distribution centers, corporate headquarters, or restaurants with custom kitchen configurations.
How Build-to-Suit Differs from TI Allowances
With a TI allowance, you customize an existing shell. With build-to-suit, the landlord may be constructing from the ground up or doing a complete gut renovation. The landlord typically finances the entire build-out, and the construction cost is factored into your rent — meaning higher base rent over a longer lease term.
Key Terms to Negotiate
Design Control
- Who approves the architectural plans and specifications?
- What change order process applies if you need modifications during construction?
- Who selects the general contractor?
Timeline and Delays
- What is the guaranteed delivery date?
- What penalties apply if the landlord delivers late?
- Do you receive rent abatement or free rent during construction?
- How are force majeure delays handled?
Cost Overruns
- Are you responsible for costs exceeding the agreed budget?
- Is there a guaranteed maximum price?
- How are change orders priced and approved?
Lease Terms
- BTS leases typically require long terms (10-20 years) because the landlord needs time to recoup the construction investment
- Early termination penalties are usually severe
- Renewal options become critical given the long initial commitment
When to Consult a Lawyer
Build-to-suit deals involve complex construction, financing, and lease terms. Consider engaging both a commercial real estate attorney and a construction attorney to review the agreement before committing to a long-term obligation.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.