Last edited 18 Feb 2019

Built to suit

Built-to-suit is a property term that describes a scenario in which a developer (or building owner) provides a building that is built (or refurbished) to a tenant’s exact specification. The developer finances the project and is responsible for its design, construction and completion. The developer retains ownership once the land and the building(s) are leased to the tenant.

Built-to-suit properties can range from single units to multi-building facilities. Agreements are usually made between the developer and a single tenant, although more than one tenant may be involved.

According to Savvas Kotsopoulos of law firm Miller Thomson, the arrangement between developer and tenant essentially comprises two agreements:

  1. A development or construction agreement, the result of a request for proposal (RFP) process, which defines the relationship between the landlord and tenant from the design through construction of the building, and
  2. A lease agreement which stipulates the terms of the occupancy post-construction. In some cases, the provisions regarding the construction of the building are included in the lease itself or captured in an accompanying ‘work letter’.

The construction aspect of this arrangement is usually the key issue and the most complicated, warranting close attention to the landlord’s and the tenant’s responsibilities in this regard.

Build-to-suit agreements can be highly complex, as they must encompass issues of design, construction, timing and financing and so they must be drafted carefully.

[edit] Further information

For more detailed information, see ‘Laying the Foundation for a Build-to-Suit Lease’, by Savvas Kotsopoulos of Miller Thomson. https://www.millerthomson.com/en/publications/communiques-and-updates/leasing-times/december-3-2012/laying-the-foundation-for-a-build-to-suit/

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