After your lease is signed, your contractor is on board and construction starts, here’s what to expect:
Construction Permit Time
If your new office is in an incorporated area (that there’s a local municipal government, like a town, city, borough or other local government agency), it is very likely a construction permit from that governing agency will be required. Sometimes, the permit is required before the construction contractor can do any work. In other jurisdictions, the contractor can do demolition, rough plumbing, rough framing, and other preliminary work before the permit is required. The important thing to remember is that it takes
The important thing to remember is that it takes time to get the permit. Many contractors quote their work from the date the permit is issued, NOT from the date their contract is signed by you. Many times, it is assumed that the construction work will take 60, 90 or 120 days from the date the lease is signed. No one considers the 10, 15, 30 or 60 days it will take to get a building permit issued for the work to start. Many practice openings are unexpectedly delayed because the Dr. is thinking about the rent getting paid, the contractor is thinking about construction getting started, and no one is thinking about the time needed to obtain the permit.
As work progresses in your leased premises, the Contractor will be periodically present construction draws for payment. These draws may be based on (a) delivery of materials, such as cabinets, flooring, plumbing fixtures, HVAC units. (b) the quantity of contract work completed; (c) a previously designated calendar schedule, such as every 15 days. (d) some combination of the above. Your bank or another source of financing should be prepared to issue payment to the contractor in compliance with your construction contract terms. Prior to payment you, your architect or your banker should verify that the invoice is consistent with the billing method. That is if you get an invoice for 40% completion and none of the walls are yet framed. It is important to investigate the billing to avoid conflict with the contractor over nonperformance BEFORE writing the check instead of after it clears.
Keep in touch with your contractor during construction. It is easy to assume they know what they are doing and everything is proceeding according to plan. Involving yourself in the process by visiting the site regularly and talking to the sub-contractors will help you keep your finger on the pulse of progress. When there are construction issues, better for you to be aware of them early. A good contractor will welcome your visits because they know you will be able to see the progress and make their invoice payments in a timely fashion.
Construction Job Complete?
There are several definitions of job completion you should be aware of: Completion according to Building Code: most jurisdictions hold that the building code deems a job “complete” when all of the trade inspections are signed off as “final” by the building code official. Some jurisdictions require that the fire code official also sign off on a job before it is deemed complete. Another code-related term that may appear in your lease is “certificate of occupancy”.
The code officials may issue a certificate of occupancy only after the building code and fire code inspectors sign off on the job. In some jurisdictions, getting that final inspection or certificate of occupancy can take a number of days to following actual construction completion. Most of the time, you can’t start seeing patients in the space until the code issues are addressed with a final inspection or certificate of occupancy. In addition, many landlords will not release build-out allowance funding until the final inspection or certificate of occupancy issued.
Construction Completion according to the Landlord
Many leases base commencement of rent on “substantial completion” of improvements. Even if you can’t see patients for lack of a certificate of occupancy, your lease obligations may engage because construction is finished.
Completion according to the Contractor: The contractor will also be looking for payment of their final invoice upon substantial completion. To the contractor, this means that everything except punch-list items are completed. Punch-list items are paint touch-ups, final clean on fixtures installed by the contractor, alignment of cabinet doors, adjustments to door closers, cleaning up overspray from painting and other small items. It is reasonable to make a final payment, less several percentage points retainage, pending completion of punch-list items.
Completion according to You:
When the contractor is completely out of the space, the construction invoices have been paid, the equipment is set up and ready to operate. The art of completion is to have all of these definitions of completion come to fruition ad close to simultaneously as possible.