What is the meaning of the term “build-out”?

The meaning of the term "build-out" typically applies to leased office and retail buildings that start out as a little more than four walls and a door with the intention of finishing the raw space to be more conducive for the business. The build-out process requires negotiation between the tenants and the landlord regarding what kind of improvements will be made and who is responsible for paying for them.

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jan 29, 2021

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Every business has its own jargon, and the commercial real estate business is no exception. Many office and retail buildings start out with tenant spaces consisting of little more than four walls and a door. The idea is that the spaces will be finished to meet the specific needs of each tenant.

What is “build-out?”

The process of finishing this raw space is known as the “build-out.” There can be extensive negotiations between the building owner (landlord) and the tenant over:

(1) What improvements will be made?

(2) Who will pay for these improvements?

(3) Who will be in charge of getting the work done?

(4) What will the tenant be permitted (or required) to remove at the end of the lease?

A ‘build out’ represents the constructions and activities performed in a commercial building space, to make it operative for a tenant. Therefore, in this respect ‘build-outs’ can also be considered tenant improvements. Very often, a build-out will include an architect for design. Architects often focus on interiors for these types of commercial spaces, while the constructions are done by a contractor group. The contractor and architect must work together for compliance purposes. The building projects must also be coordinated with the building engineer, landlord, and tenant.

If you plan to make changes to the existing business space, you may be required to submit architectural plans, including a floor plan of the entire building with all tenant space(s) located.

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What is a build-out analysis?

Doing a build-out analysis determines the holding capacity of the land. A build-out analysis is used to estimate and define the amount and the location of expected development that is meant to happen within a specified area or community.

The build-out analysis gives an estimate of the total number of houses, commercial/industrial square footage, and a population that could result within a community or specified area through maps and charts.

When evaluating future development opportunities, a build-out analysis can assist in answering the following questions:

• How much land area can be developed under current land use regulations?

• How many residential lots could there be?

• Are there any areas that the organization would prefer not to develop?

• Are there areas that the organization would prefer to develop at higher densities?

When conducting a build-out analysis, there are a lot of techniques and models that can be used but basically, a typical analysis narrows down to a two-phase process that involves mapping and quantitative estimates.

Consult a commercial real estate agent who can provide tips on tenant improvements and advise you on legal terms.

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