Commercial fit out schedule risk, and what the leasing date does to it

Commercial fit out schedule risk is created in a room the construction team is not in. A leasing negotiation agrees a delivery date, the lease is signed, and a date that was a commercial concession becomes a construction obligation with money attached.

Two calendars that do not talk to each other

The construction schedule is built from durations, logic and procurement lead times. It produces a date.

The leasing calendar is built from tenant requirements, market timing and negotiation. It also produces a date.

On most commercial projects these two dates are agreed by different people, in different rooms, at different times, and reconciled only when one of them is missed.

The leasing date usually wins the argument, because it is attached to a signed document with a rent commencement clause and a tenant who has given notice on other space. The construction date is attached to a program that the owner is paying for and can therefore be pushed.

That asymmetry is the whole of the problem. A date that was never tested against the sequence becomes the date the project is measured against, and the gap between the two is closed with overtime.

None of this requires anybody to behave badly. It requires only that two calendars exist and nobody holds both.

What the leasing date actually commits you to

A delivery date in a lease is rarely just a date. It usually carries three attachments, and each one converts a schedule slip into money.

Rent commencement. If delivery is late, rent starts late, and the loss is the daily rate multiplied by the delay. On a large floor plate that is a substantial daily figure and it is not covered by construction liquidated damages, which run to the owner rather than from them.

Tenant remedies. Many leases give the tenant free rent, a termination right or a damages claim after a stated period of delay. The termination right is the one that matters, because it converts a schedule problem into a leasing problem in a market that may have moved.

Tenant improvement sequencing. The tenant contractor is scheduled against the delivery date. A late delivery pushes their mobilization into a period they may have sold to somebody else.

Add the three and a four week delivery slip on one floor can cost considerably more than four weeks of general conditions, which is the figure the construction budget carries for it.

Where commercial fit out schedule risk concentrates

Four points on a commercial job carry most of it, and all four are visible at signature.

Envelope close. Nothing inside starts in earnest until the building is weathertight. Curtain wall is a long lead item with a shop drawing cycle in front of it, so the close date depends on decisions made a year earlier.

Permanent power. Utility energization is outside the contractor control and frequently outside anybody control. A temporary service is a real option and it costs real money, and whether it is in the price is a one line question.

Elevator acceptance. Inspection and acceptance sit at the end, they are scheduled by a third party, and nothing about occupancy proceeds without them.

Certificate of occupancy sequencing. Whether the building can take partial occupancy floor by floor, or requires the whole building complete, changes the delivery date for every tenant on every floor.

Each of these four is a date behind the date, in the same sense as long lead items and the date behind the date.

A worked example

A commercial building with substantial completion scheduled for month twenty four. Leasing signs an anchor tenant for floors six through nine with delivery promised in month twenty one, on the reasoning that those floors are complete before the top of the building.

The schedule does not support it. Permanent power is scheduled for month twenty two and the elevators are accepted in month twenty three. Partial occupancy on floors six through nine without either is not achievable.

The gap is discovered in month fifteen, when the tenant contractor asks for a mobilization date.

Recovery: a temporary electrical service at $310,000, an accelerated elevator package at $190,000, and two months of free rent conceded to the tenant worth $340,000.

Total $840,000 to close a three month gap that existed on the day the lease was signed, and that any comparison of the two calendars would have shown in twenty minutes.

The reconciliation nobody owns

The fix is organizational rather than technical, and it is one recurring meeting.

Somebody has to hold both calendars. On most projects the leasing team does not read the construction schedule and the construction team does not see the lease drafts, and both of those are reasonable given what each is asked to do.

What is not reasonable is that no document reconciles them. A one page table listing every signed and prospective lease, its promised delivery date, the construction activity that gates it, and the float between the two, is an afternoon of work and it is the single most useful schedule document on a commercial job.

It also changes the leasing negotiation. A leasing team that knows floors six through nine cannot be delivered before permanent power negotiates a different date, or negotiates the same date with a condition attached, and either outcome is better than discovering the conflict in month fifteen.

The table has to be maintained, because both calendars move. Monthly is enough on most jobs and the update takes minutes once the first version exists.

There is a second benefit that is harder to price and easier to notice. A construction team that can see the leasing pipeline sequences differently. Told that floors six through nine carry a signed tenant and floors ten through fourteen do not, a superintendent will finish six through nine first, and that costs nothing to arrange in month eight.

Without the table that information never crosses, so the building is finished bottom to top on the reasoning that this is how buildings are finished, and the floors with money attached arrive in the same order as the floors without.

What to do before you sign

1. Build a table of every lease delivery date against the construction activity that gates it.
2. State the float between each pair, in days, and flag every one under thirty.
3. Establish whether partial occupancy floor by floor is achievable, and write the answer down.
4. Find the permanent power date and decide now whether a temporary service is priced.
5. Find the elevator acceptance date and confirm who schedules the inspection.
6. Read the rent commencement and tenant remedy clauses for every signed lease.
7. Give one named person the job of reconciling both calendars monthly.

Item seven is the only one that survives the first quarter. The other six produce a document, and a document nobody owns stops being true within two months of the first schedule update.

Item four is the one with the shortest window. A temporary service is a design, a permit and a piece of equipment, and deciding on it in month fifteen costs several times what deciding on it at signature would have.

How that reading is scoped and what it produces sits in the review packages.

What we do

We read the construction schedule against the lease delivery obligations and produce the table above: every promised date, the activity that gates it, the float between them and what a slip is worth under the lease terms. We describe what the clauses require and leave the question of tenant remedies to your counsel. The work sits in the schedule and procurement risk review. With three weeks or more before signature, the full pre-GMP review reads the price, the schedule, the interfaces and the change exposure together.

Questions people ask