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Development Issues for Tenants to Consider In Build to Suit Leases

By Ian Sutton
January 01, 2023

Representing tenants in build-to-suit (BTS) leases is not an entirely different beast from representing tenants in standard commercial leases. Similar to standard commercial leases, BTS leases include the familiar bells and whistles like term, rent, scope of permitted uses, renewal options, and allocation of tax burden and maintenance and repair obligations. But there are several issues and terms to consider related to the development process that differentiate BTS leases from a standard commercial lease that are important for the tenant to understand to effectively manage costs and effectively protect itself from delays in the development schedule.

Under BTS leases, a landlord or developer agrees to design and construct a commercial building meeting a tenant's custom plans and specifications. The landlord or developer acquires and finances a selected site, designs and constructs the building to the tenant's custom plans and specifications, and the tenant leases the completed building from the landlord for an agreed to term. Although the landlord and developer are often the same entity that owns the site on which the building is constructed, the landlord is sometimes a capital partner only that engages a fee developer separately to perform the design and construction of the custom building. However, the key considerations and terms regarding budget development and reconciliation, bidding, allocation of cost savings, and late delivery apply between the landlord and tenant regardless of which structure variation is selected.

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