A Brief Introduction About the Build to Suit Agreement
Build to suit is a commercial agreement, in which, the landlord constructs a custom-built property and rents it out to the tenant. The tenant gets an efficient and large space to carry on their regular office tasks conveniently. In return, the tenant pays a certain rent to the landlord. The rent is decided as per the construction cost and property value.
Basically, it is a detailed contract that features the crucial steps to find, select, finance, and rent a particular property. On this property, the builder constructs the commercial building for the tenant. Build to suit definition, steps to draft the agreement, and how does a build to suit lease work are detailed hereunder
Who Takes the Build to Suit Agreement?
The contract is signed by the tenant (who rents the custom-built building) and the landlord (who owns the property and invests in its construction). As soon as this agreement is signed, the developer starts the construction process according to the client’s requirements. The client becomes the sole occupant of this building.
Purpose of the Build to Suit Agreement
The agreement is the best way to acquire a custom built office, restaurant, school, college, and other such commercial space. For example, a build to suit a restaurant lease is the best agreement for the aspiring restaurant owner who wants to start a restaurant without having to invest a large capital. The main purpose of this agreement is to clarify the lease terms to the tenant and landlord.
Contents of the Build to Suit Agreement
Signing a build to suit lease form is an important aspect of renting a custom-built property. It works as evidence of the deal. Additionally, this agreement clears all the confusion about the delivery date, tenant’s requirements, the expiry date of the lease, and other essential terms that both the landlord and tenant are supposed to adhere to.
A standard build to suit lease agreement template contains the following terms:
- Description of the services
- The scope of work
- Compliance with all the relevant laws
- Materials and/or labor services provided by whom
- Payments that will be made and the payment schedule
- The term of the lease
- Responsibility for obtaining the permits for working
- Responsibility for taking insurance
- Work product ownership
- Confidentiality clause
- Warranty and indemnity clause
- Restrictions on access to worksite
- Right to inspection and the utilities provided
- Events that constitute default
- Force majeure and dispute resolution
- Papers that involve the details of the landlord work — the work required by the builder or landowner before the tenant acquires the building.
- Other crucial built to lease agreements, in which, the improvement allowance and delivery date are specified.
- The final agreement that entails the responsibilities of the landlord and tenant after possession.
- Governing law
How to Draft the Build to Suit Agreement?
To reap the maximum benefits, you must draft a perfect build to suit lease agreement. Here are some of the imperative components that must be involved in the contract.
- Involves Parties: The involved parties specify the name of the people involved in the contract. It includes the landlord, tenant, guarantor, and tenant contact information.
- Premises Description: Before the tenant signs the build to suit lease contract, they must check the description of the premise to ensure that the property is legally owned by the developer. The premises description section specifies the necessary information about the owner of the property, upon which, the purpose-built building will stand.
- Terms of Service: Terms of service is the most imperative part of the build to suit lease agreement. In this section, the lease period is specified. Make sure that the terms of the lease are non-cancelable and inflexible parts of the agreement.
- Renewal Options: If the tenant is satisfied with the commercial building, then he can apply for renewal or lease extension option after the expiration of the lease period.
- Rent: The tenant gets a custom-built property and in return, they are supposed to pay a specific amount of rent to the owner. This rent is calculated by the landlord. Before you sign the agreement, calculate and discuss the rent with your landlord.
- Details of the worksite and the rights to inspection
- Responsibility of providing material or labor
- Responsibility for paying all relevant taxes, costs, and obtaining permits
- Access to the worksite
Other than this, the lease contract involves plans, maintenance and repairs, uses and restrictions, tax-based information, work letter, and more.
Once the agreement is drafted, the next step is to understand and agree to the terms and obligations mentioned in the document. Both the landlord and tenant must accept the conditions before proceeding with the acquisition. Negotiation strategies typically are done in the following areas
- The amount of rent to pay
- The cost of customization
- The actual customization that needs to be done
- Responsibility of providing material and labor
- Responsibility of paying taxes and obtaining permits
Benefits and Drawbacks of Built to Suit Agreement
The pros of build to suit agreement are:
- Capital Preservation: By renting a custom-built building, the tenants can preserve capital. The capital you would invest in buying a property and constructing it according to your needs can now be used for growing your business. In return, you only have to pay a small amount of rent to the landlord.
- Flexible Option: Buying a property can involve a long-term commitment. But leasing the same is a much flexible option since you only occupy the property for a specific period.
- Efficient and Customized Building: The best part about the build to suit lease agreement is that the tenant gets to work in a customized office or building. The building is designed to suit the requirements of the tenant.
Cons of build to suit lease agreement:
- It is Expensive: To recover the cost of construction, the landlord can fix a high monthly rent that can cost a bomb to the tenant.
- Long-term Commitment: Although it is flexible, build to suit lease is a long-term commitment. You cannot cancel the deal before the expiration of the lease.
What Happens in Case of Violation?
The contract can be violated if the landlord and tenant do not stick to the terms and conditions given in the lease contract. Failure of the rent payment, property construction that’s not up to the tenant’s expectations, and other conditions can result in the termination of the deal. In most cases, the treatment for such breach will be mentioned in the contract. In the event it isn’t clear or the treatment to cure didn’t work, then the parties can decide on arbitration. The last resort is a suit in the court of law. This may be for compensatory damages, specific performance, or injunctive relief
A build to lease agreement is a necessity for landlords and tenants who wish to come into the build to lease contract. You must check the build to suit lease agreement template to get a better understanding of how the agreement must be crafted.
Sample Build to Suit Agreement
A sample of the agreement can be downloaded from below.
Download this USA Attorney made Original Agreement for only $9.99
This agreement is made between the Owner and the Company on the effective date of 12th November, 2011.
Owner represented by
Ms. Nina Arianda
Address: 3100 Curry Woods Circle, Orlando FL 32822
Contact number: (407) 545-4141
Company represented by:
Mr. Henry Joost
Address: 1518 Leeway Avenue, Orlando FL 32810
Contact number: (407) 277-8656
Terms and Conditions:
- Owner and Company referred herewith as “JupiterHomes” have entered into this Build-to-suit Agreement referred herewith as the “Sugar Bend Lease”. Owner is leasing the said property “7725 Sugar Bend Drive” to JupiterHomes, and JupiterHomes is leasing from the Owner, the specified real estate property situated in the City of Orlando, State of Florida and herewith known as the “Sugar Bend Premises”.
- As a part of the Sugar Bend Lease and in accordance with the Build-to-suit Agreement, the Owner desires to give to JupiterHomes, and JupiterHomes desires to obtain from the Owner, the option for leasing certain or all portions of the Sugar Bend Premises on agreed terms and conditions.
- JupiterHomes will have the option for leasing Sugar Bend Premises on a build-to-suit basis based on the various terms and conditions as described in this Build-to-suit Agreement.
- JupiterHomes shall deposit the sum of Six Hundred Thousand Dollars ($600,000) with the owner after the execution of this Build-to-suit Agreement.
IN WITNESS WHEREOF, the parties “Owner” and “Company” have executed this Build-to-suit Agreement as on the date set forth which is 11/12/2011 (MM/DD/YY).
SIGNED FOR AND ON BEHALF OF OWNER BY:
SIGNED FOR AND ON BEHALF OF COMPANY BY: