Build To Suit Agreement Template

In plain language: Identifies the developer and tenant as legal entities, states the purpose of the agreement, and defines capitalized terms used throughout the contract.

Common mistake: Using trade names instead of registered legal entity names. If the contracting entity differs from the operating entity, enforcing construction obligations or lease terms against the correct party becomes difficult.

In plain language: Identifies the specific parcel of land where construction will occur using legal description, assessor's parcel number, and address, and confirms the developer's title or ground lease interest sufficient to perform.

Common mistake: Failing to attach the full legal description or APN as an exhibit. An address alone is insufficient for a recorded instrument and can create title disputes when the lease is later assigned or refinanced.

In plain language: Incorporates the approved construction drawings, performance specifications, and any tenant-required design standards, and establishes the process for approving changes to the plans.

Common mistake: Attaching only schematic-level drawings rather than construction documents. Vague specifications give the developer latitude to substitute materials or systems that reduce quality while remaining technically 'in compliance.'

In plain language: Sets the project commencement date, key milestone dates (foundation pour, roof, substantial completion), and the outside delivery deadline after which the tenant may terminate.

Common mistake: Setting a single delivery date with no intermediate milestones. Without checkpoints, a tenant may not discover that construction is fatally behind schedule until it is too late to make alternative arrangements.

In plain language: States who bears construction costs, whether a guaranteed maximum price applies, and the process for authorizing and pricing scope changes requested by either party.

Common mistake: Omitting a guaranteed maximum price and relying on 'reasonable cost' language. Open-ended cost structures expose the tenant to rent increases tied to cost overruns, particularly on projects with long construction timelines.

In plain language: Defines exactly when rent begins — typically on substantial completion or a fixed number of days after the certificate of occupancy — and sets the base rent, annual escalation rate, and total lease term.

Common mistake: Linking rent commencement solely to a certificate of occupancy without a date-certain backstop. CO issuance can be delayed by municipal backlogs unrelated to construction quality, leaving both parties in limbo.

In plain language: Specifies the dollar amount the developer will contribute toward tenant-specific finishes, the scope of work it covers, the disbursement process, and what happens if the tenant's improvements exceed the allowance.

Common mistake: Not specifying the disbursement trigger or lien waiver requirement. Developers have been held liable for subcontractor mechanics' liens on tenant improvement work when allowance payments were made without collecting conditional lien releases.

In plain language: Defines what constitutes a developer default (failure to construct, insolvency, material deviation from plans) and a tenant default (failure to execute the lease on substantial completion), the notice and cure periods, and each party's remedies.

Common mistake: Providing identical cure periods for all default types. A material structural deviation requires immediate action, not 30 days — tiered cure periods calibrated to default severity protect the tenant more effectively.

In plain language: Allocates risk between the parties for damage or destruction to the project during construction, specifies required builder's risk and general liability coverage amounts, and names each party as an additional insured.

Common mistake: Not requiring the developer to maintain builder's risk through the punch-list period. A fire or major casualty between substantial completion and the rent commencement date can fall into a coverage gap if builder's risk lapses at CO issuance.

In plain language: Specifies the jurisdiction whose law governs the agreement, how disputes are resolved, and whether a memorandum of the agreement will be recorded against title to provide constructive notice to third parties.

Common mistake: Not recording a memorandum of agreement. Without a recorded instrument, a subsequent buyer or lender who takes the property without actual knowledge of the BTS arrangement may claim priority over the tenant's rights.

A build to suit agreement is a contract between a property developer and a commercial tenant in which the developer agrees to construct a building to the tenant's specific requirements on a designated site, and the tenant commits to a long-term lease of the completed facility. The agreement is executed before construction begins and governs specifications, costs, milestones, rent commencement, and each party's rights if construction is delayed or defective.

A standard commercial lease is signed for an existing building. A build to suit lease is executed before the building exists and includes a pre-construction phase governing how the facility will be designed and built to the tenant's requirements. The BTS agreement also allocates construction risk — delays, cost overruns, defective work — that a standard lease never addresses because the building is already complete when the parties sign.

In most build to suit arrangements, the developer finances and pays for construction, recovering the investment through above-market rent over the lease term. The tenant may contribute a tenant improvement allowance for custom interior finishes above a base building specification. In some structures — particularly sale-leaseback or ground lease BTS deals — the tenant funds construction and a developer or investor purchases and leases back the completed asset.

Build to suit leases typically run 10 to 20 years, with 10 to 15 years being most common for industrial and distribution facilities and 15 to 20 years for healthcare and mission-critical facilities. The long term is necessary to justify the developer's upfront construction investment and to satisfy lender requirements for permanent financing of the completed project. Shorter terms of 5 to 7 years are possible for smaller construction budgets.

The consequences depend entirely on what the agreement says. A well-drafted BTS agreement gives the tenant a termination right if substantial completion is not achieved by an outside delivery date, often with liquidated damages for delay beyond a grace period. Without these provisions, the tenant's only remedy is a general breach of contract claim, which requires proving actual damages — a costly and uncertain process. Always negotiate a specific outside delivery deadline with a clear termination right before executing.

Substantial completion is the point at which construction is sufficiently complete for the building to be used for its intended purpose, even if minor punch-list items remain. It is typically evidenced by an architect's or engineer's certificate and triggers rent commencement under most BTS agreements. The definition matters enormously — a tenant should ensure that substantial completion requires all major systems (HVAC, electrical, plumbing, loading dock equipment) to be operational, not just the shell.

Yes, for virtually all BTS transactions. The agreement creates obligations worth millions of dollars over a decade or more, allocates construction and financing risk between sophisticated parties, and intersects with real property law, construction law, and commercial landlord-tenant law — all of which vary significantly by state and province. A real estate attorney familiar with construction contracts and commercial leasing should review the agreement before execution, particularly for first-time tenants or developers entering a new jurisdiction.

A build to suit agreement is primarily a real estate and leasing instrument — it governs the landlord-tenant relationship from pre-construction through the end of the lease term. A design-build contract is a construction procurement contract in which a single entity handles both design and construction, typically used when the owner (not a landlord) is procuring a building on their own land. A BTS deal may incorporate design-build delivery as the construction method, but the BTS agreement itself covers far more than construction — it governs rent, lease terms, and tenant rights for the building's entire economic life.

Yes. Many BTS agreements include a tenant purchase option exercisable at the end of the initial lease term or at defined points during the lease. The option price is typically tied to a cap rate applied to then-current rent, a fixed price agreed at execution, or fair market value at time of exercise. Purchase options add meaningful complexity — tax treatment, financing contingencies, and title transfer mechanics — and should always be drafted with real estate counsel.