In too many deals, work letters are treated as the tail of the dog when, in fact, they often are the heart. The old leasing common law assumptions – tenant is simply leasing vacant land and the condition of the land is irrelevant – are left over from an ancient agricultural era. In our modern times, tenants have specifications: they lease conditioned and waterproofed space with specific utilities, amenities and, more and more commonly, they lease space custom designed to meet their needs. If the work letter fails to provide the equipment, design features, services and amenities that your client is counting on, then your lease failed.
Yet, again and again, lawyers overlook work letters. We are always surprised to hear a lawyer say, “I won’t bother reading the work letter because that’s my client’s (or his architect’s or engineer’s) problem.” Drafting a clear work letter is definitively the lawyer’s concern for a number of reasons. First, almost every work letter waives rights, sets standards for work quality, agrees on methods to resolve dispute or otherwise addresses “legal” matters.
Second, work letters invariably are written without the clarity that the lawyer insists on in the body of the lease. It is the lawyer’s job to convert a provision in the work letter that reads, “an HVAC system will be provided” into “Landlord will, at its sole cost and expense, provide an HVAC system.” Lawyers worry about responsibility and cost. Engineers and contractors worry about construction. A lawyer needs to bridge the gap; don’t leave room for misunderstandings.
And third, in many cases the obligations contained in the work letter are crucial to what the client expects. If, after the lease is signed, your client finds he doesn’t have the electrical or internal services to operate his business, or if the client negotiates for certain rights under the letter of intent, but receives different ones under the lease, your client will be dissatisfied. Dissatisfied clients make malpractice claims.
So, how do you fix a work letter? Here are some suggestions.
•Write in full sentences. Every sentence in a work letter should have a subject, an object, a full description of the action and a cost allocation. It is shockingly common to find out, in the middle of lease negotiations, that neither side has discussed the allocation of construction costs and each assumes the other is responsible.
•Provide deadlines. Each party should agree, up front, when each phase or element of work will be completed. Consider whether one global deadline is needed or if there are no appropriate interim deadlines, dates are needed. (For example, in order to start the HVAC work early, the electrical work must be completed by June 1.) n Agree on consequences for failure to meet dates or deadlines. Construction and delivery delays have widespread impact and a cascading effect: interference with landlord’s other tenants, interference with tenant’s other locations, violation of co-tenancy obligations, missed store openings, tenant’s other leases expiring, lending problems and more. Rent abatement and acceleration are common and easy hammers to punish missed deadlines and provide a strong incentive to meet deadlines.
•Address force majeure delays. Specifically think about allowing force majeure delays other than the weather. To address one common exception, are you really willing to give a lot of leeway if permitting is deferred? What is a reasonable expectation for receipt of permits in your municipality? What if the party asking for a permit doesn’t comply with code or otherwise makes unreasonable requests? n Address field changes and change orders. It is a truism of military tactics that no plan survives the first contact with the enemy. It should also be a truism in the construction world that no building plan survives first contact with the contractor. There will be changes. If your work letter fails to address the impact of those changes in terms of cost and schedule then you do your client a disservice. Make it clear that change orders may be explored with limited consequences to the requesting party. That way if costs or delays associated with the proposed change order are beyond what was anticipated, your client can rescind the changes at minimal cost.
•Tie the work letter into the rest of the lease. Use the same defined terms throughout the lease and work letter. If one party is responsible to install, but the other to maintain a piece of equipment, think hard about whether that makes sense and make sure that your client understands this dichotomy.
•Avoid description items as “as-is.” This language is a pitfall unless you are totally clear about what “as-is” means. “As-is” as of what date? How do you prove that condition? (Hint: Take your phone with you and take pictures.) What if the space has a fire the day after the inspection? Can the landlord still tender “as-is,” and does that mean it is delivered burned or repaired to the condition before the fire?
•Be specific. Specify exact makes and models for all equipment. Show locations in a markedup site plan. Set specific, detailed requirements for water service, electrical, etc.
•Communication. Know your clients well enough to help them ask the right questions and to anticipate their concerns.
A good work letter is not just the last exhibit attached to the lease. It can be the starting point to getting your clients the premises they really want and the legal service they deserve.