Construction Chargebacks: The Hidden Costs

Virtually every retail lease contains what is commonly referred to as the “Construction Exhibit.” Certain retail leases divide the Construction Exhibit into several smaller exhibits that address different portions of the tenant's construction work, including plan submittal, application for permits, insurance, lien waivers, signage, security and construction deposits. In addition, virtually every retail lease addresses a category commonly referred to as “chargebacks.” The chargebacks address certain items for which the landlord seeks payment or reimbursement from the tenant for various aspects of the tenant's construction work. These construction chargebacks may include:

• Barricade charges;
• Plan review fees/engineering fees;
• Temporary utilities;
• Sprinkler drain-down fees; and
• Fee for work and/or materials provided by the landlord as part of the tenant's construction work.

This article addresses the manner in which retail leases attempt to assess these construction chargebacks, and also discusses the manner in which a tenant should address these construction chargebacks in its comments to the landlord's draft of a retail lease.