Stop work for “potential” commercial tenant?

Question

Hello Everyone,

We were working on my job site last week on a commercial unit I acquired (1st one) and a potential renter saw us and is very interested in renting. They have a smaller unit in the office park. Mine is 2700sqft. They asked me to stop work since they will want to change the floor plan. They want to convert it to a hospice. The unit used to be a medical office. I have no lease agreement with them. I agreed to halt work and will meet with them tomorrow to come up with a term sheet I can present to my lawyer. During this time their contractor gave them a bid that was too expensive for them and they want to shop around some more. The work I was having my guys do would take 1.5 weeks to complete and I don’t want to leave this job unfinished any longer. My question is if we can’t come to an agreement tomorrow do I move forward with finishing the work to be done? I haven’t even advertised the place. I just don’t imagine they would want to put a deposit down if they don’t have a estimate for their buildout yet.

Nathan Gesner · Answer

Money talks, the rest walks. If they're serious, then they will put the money down.

Scott E. · Answer

I don't see what the rush is. You have a potential tenant who has serious interest, who already has an established business in this same office park. This is a dream scenario in my eyes (Assuming their credit checks out and they offer favorable lease terms).

If they need a few weeks to sort out their buildout estimate and get paperwork together, that's no big deal. It'll probably take months to fill this unit if you move forward with finishing your remodel then market for lease.

Account Closed · Answer

Personally, I would stop working on it and only bring the space to “vanilla box” where the shell is completed and primed, the building is ADA compliant and the bathrooms are completed. The more you do, the smaller your potential tenant pool will become. Case in point: your current situation.

Jonathan R McLaughlin · Answer

@Paul Callins presuming the work you are doing will attract other tenants give them a defined period of time and request an option fee to stop work for that period.

It’s not the money, make it 100-500 or something it’s to establish an intent while they are “shopping around”

The reaction you get will tell you something. Then keep working :)

Paul Callins · Answer

Thanks for the quick reply. I wasn’t sure if I was being too hasty. I didn’t know what kind of timeline to expect. This is my 1st commercial property and it’s in a great location. I have had two other tenants in office park that expressed interest as well. I was just concerned with having to bring workers back in if we don’t come to an agreement. I have another job lined up for them after the office unit is finished. I will try to relax and let this play out. How long would you generally give a potential tenant for due diligence?

Chris Seveney · Answer

@Paul Callins

Meet tomorrow - see what they are considering paying in rent. I would get a sense to see how serious they are and get them under a LOI asap.

Long term wise if you can get them signed up and under a lease it will most likely be faster than finishing the unit and leasing it. I would see how this plays out vs having to redo work

The other question is how much is the cost for the work that would have to be redone ?

Stop work for “potential” commercial tenant?

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