Control Contractor Headaches When Tenants Expand

If your building or center has multiple tenants, at least one of them will want the unlimited right to expand its space if business grows, and the option to exercise the expansion right at its convenience.

As an owner, you might be hesitant to include an expansion option in the lease, because it indirectly ties up open space in your building, which ultimately ends up costing you money. However, since your goal is always 100 percent occupancy, you may have to grant a tenant's request for the inclusion of an expansion option, to secure or maintain the relationship.

The expansion option often includes alterations to your building, which means that either you or your tenant will be bringing in contractors. If that is the case, you should be concerned about contractors wreaking havoc on your building, says New Jersey real estate attorney Marc L. Ripp.

Contractors and work crews are not always the most cautious, and if you don't regulate their work practices and behavior, they could damage your property and disrupt your other tenants, he warns.

Before any work begins in your building, you should have the contractor sign off on a set of specific work rules set by you, says Ripp. You can also add a clause to your lease that requires tenants to hire only contractors that agree to abide by your work rules. In this issue, we give you a Model Lease Clause: Incorporate Work Rules into Lease, that you can use for this purpose.

Contractor Work Rules

Regardless of who hires the contractor, as the owner of the building, you should protect yourself by negotiating an agreement that requires the contractor and all of its workers to do the following:

Provide drawings of proposed construction and work schedule. The contractor should provide you with copies of drawings, a detailed construction schedule, and an emergency contact list before beginning any work.

Upon receiving the drawings and schedule, you should conduct a thorough review to ensure that the contractor has complied with your building's standards and will be able to complete the job in an acceptable time frame.

Get all permits and insurance before beginning work. The contractor should provide you with copies of all required permits, paid receipts for the permits, and a current certificate of insurance before beginning any work on the premises, says Ripp. If you allow a contractor to begin work without the proper permits and insurance, it could get shut down in the middle of the project and leave your building in a state of disarray.

Provide security deposit. Require the contractor to give you a security deposit that can be applied to cover any costs incurred to repair damage caused by the contractor and work crew, says Ripp. The amount of the security deposit should be based on the length of time the contractor needs to complete the work and the exposure for potential damage to your building.

Confine all contractor activity to tenant's space. Make sure that the contractor stays in the tenant's space that it has been hired to work in and does not let work or any other activities spill over into the common areas or other tenants' spaces.

For example, if the contractor is working next to another tenant, the contractor should not have tools in front of the neighboring tenant's entrance, or ask to use the neighboring tenant's electrical outlets, or utilize any entrances designated for the neighboring tenant.

In addition, when the contractor and work crew take lunch and work breaks, they should stay in the tenant's space, take their breaks in the rear of the building, or leave the premises.

You should also strictly prohibit contractors and crew members from:

• Smoking inside your building or near entrances;

• Congregating in your common areas or the front of your building; and

• Using foul or abusive language in and around your building.

Contractor must repair any damage it causes. Get the contractor to agree that it will perform all work in a professional, thorough manner, and repair any damage to the floors, walls, doors, and ceilings before construction is completed.

Minimize noise during business hours. Prohibit the contractor from making excessive noise during business hours, unless it gets your permission, says Ripp. For instance, if the contractor has to use a jackhammer or any other type of loud equipment during prime work hours, it should contact you prior to using the equipment, so that you can alert other tenants of the upcoming disruption.

Comply with set work hours. Set strict work hours that lay out the exact times and dates you will allow work to be done in your building. If the contractor has to work before or after the set hours, require the time to be pre-approved by you or a member of your management team, says Ripp.

Make sure you coordinate the contractor's before- and after-hours work schedule with security, so that they can keep track of who's on the premises and serve as an escort if necessary.

Use designated parking areas only. Require the contractor and work crew to load, unload, and park all vehicles in a designated area, preferably away from the front of your building, says Ripp. Allowing contractors to park in front of your building can create a parking nightmare for your tenants and visitors.

Also, Ripp warns that having work trucks scattered about in front of your building could hurt your current tenants' business and keep good potential tenants from renting space at your building.

Wear building-issued badge at all times. The contractor and work crew should wear limited-access badges at all times. The badges should be issued by your building's security team and give the contractor access to only the floors that they will be working on.

Use service entrance. All workers should enter and exit through your building's service entrance or at the rear of the building.

If the contractor has equipment that won't fit through the designated entrance, any front entrances should be coordinated by you, a member of your management team, or building security.

Get pre-approval for deactivation of building systems. On occasion, contractors may have to turn off the power or disconnect the sprinkler system to complete their work. Require your contractor to get approval from you before they deactivate any systems in your building, says Ripp. Getting pre-approval gives you ample time to send out notice of the interruption to your other tenants, explains Ripp.

You should also have the contractor get permission to enter your electrical room, and have one of your more experienced maintenance staff members accompany them.

Get permission to work on your roof. It's important that the contractor get your permission before doing work on your roof, as any alterations or damage to the roof caused by the contractor could void your roofing warranty. Play it safe and contact your roofing company to let it know that work is being done on the roof. If possible, have a representative from the company meet with the tenant's contractor to discuss the work.

Get approval to weld or to drill into building's foundation. It's extremely important that the contractor get your approval before it drills into your building's foundation, or welds, says Ripp. Welding is often a common source of fire, and drilling into the foundation could damage the structural integrity of your building. Both activities should be pre-approved and monitored closely by you or a member of your maintenance team.

Store all tools and equipment in tenant's space. Make sure that any contractor tools, equipment, or supplies are stored in the tenant's space, says Ripp. In addition to keeping your common areas clutter-free, this will protect you against any trip-and-fall claims by other tenants and visitors, and any potential theft claims brought by your contractor or members of its work crew.

Provide Dumpsters for waste removal. Don't allow the contractor to use your Dumpsters or compactors, says Ripp. If you pay for trash removal and are charged by the amount that's hauled away, you could end up paying significantly more if the contractor's debris is mixed in with your trash, he warns. Instead, require the contractor to provide its Dumpsters for waste removal, and you should check that they are being emptied periodically.

Pay for any electricity used in tenant's space. Get the contractor to pay for any electricity it uses while working in the tenant's space, says Ripp. An exact figure may be hard to pinpoint, so Ripp recommends negotiating a flat fee for a determined amount of time, with the option to revisit.

Not use any of the building's equipment. Make it clear to the contractor, its employees, and your employees that your building's equipment and tools are off limits to the contractor and work crews.

If you let the contractor use your equipment and tools, you risk having your property damaged, stolen, or even worse—someone could sue you if he gets hurt while using your equipment, Ripp warns.

Keep dirt and odors out of common areas. Require the contractor to make every effort possible to not track any dirt and dust in your common areas, and if it does, to clean up the area immediately, says Ripp. More important, ensure that the contractor provides adequate ventilation so that no dangerous fumes drift into common areas or other tenants' spaces.

Maintain fire extinguisher in tenant's space. Insist that the contractor maintain a working portable fire extinguisher in the tenant's space at all times, and that it train its crew members on the proper use of the equipment, says Ripp. Ideally, the contractor should mount, locate, and identify the equipment, so that it's readily accessible to all staff.

Agree to work stoppage for rule violations. Have the contractor agree that if it or any of its workers violates the rules set forth in the agreement, you have the right to stop the project, says Ripp. For example, if the rules state that no equipment shall be stored in the common areas, but the contractor violates the rule by consistently leaving electric saws in the corridor, you should have the right to come in and stop the work.

Insider Source

Marc L. Ripp. Esq.: Sr. Assoc. General Counsel, Mack-Cali Realty Corp., Mack-Cali Centre II, 650 From Rd., Ste. 220, Paramus, NJ 07652-3517; (201) 967-0324; mripp@mack-cali.com.