A work letter is the lease exhibit that defines the construction of a tenant's space: who designs it, who builds it, who pays, and by when. It fixes the scope of landlord's work and tenant's work, sets any tenant improvement allowance, and governs the delivery condition and timing that trigger rent commencement.
What Is a Work Letter in Commercial Real Estate?
A work letter is the section of a commercial lease, usually an attached exhibit, that spells out how the leased space gets built out before the tenant moves in. As industry advisors describe it, a work letter should be part of the lease document for anything beyond the most minor construction, covering the space plan, the level of finishes, pricing plans, construction documents, and who is responsible for each.
The document allocates two buckets of work and their cost. Landlord's work is what the owner builds or delivers; tenant's work is what the tenant completes at its own direction. The work letter states whether the landlord delivers turnkey, meaning it manages the entire build-out to an agreed finish, or provides a tenant improvement allowance for the tenant to run its own construction within a set budget.
Element | What the work letter defines |
Landlord's work | Base building and finishes the owner delivers |
Tenant's work | Improvements the tenant builds itself |
Allowance or turnkey | Whether the landlord funds a budget or builds to completion |
Delivery condition | The state the space must reach before handover |
Rent commencement trigger | The event, often substantial completion, that starts rent |
Why a Work Letter Matters
A work letter matters because it decides how much capital each side spends and when rent starts, which is why it is one of the most consequential exhibits an abstract can miss. The allowance figure is real money: for U.S. office space, the tenant improvement allowance the work letter sets typically falls in the range of $15 to $80 per rentable square foot, per The Cauble Group, varying with market, term, and space condition.
The work letter also governs timing. Rent commencement is often tied to substantial completion of landlord's work, so delays in the build-out push the rent start and change effective economics. The quotable point for an operator: a work letter is where the lease's construction promises live, and an abstract that captures the rent but not the allowance, the delivery condition, and the completion trigger has captured only half the deal.
Example
A tenant signs a 10-year lease on 15,000 rentable square feet. The work letter grants a tenant improvement allowance of $60 per rentable square foot, within The Cauble Group's reported $15 to $80 range for office. Build-out is estimated at $85 per square foot. The table shows how the cost splits.
Line | Calculation | Amount |
Landlord allowance | 15,000 SF x $60.00 | $900,000 |
Total build-out cost | 15,000 SF x $85.00 | $1,275,000 |
Tenant out-of-pocket | $1,275,000 minus $900,000 | $375,000 |
The work letter directs $900,000 of landlord capital into the space and leaves the tenant to fund the remaining $375,000. If the same lease were structured turnkey, the landlord would carry the full $1,275,000 and the tenant would fund none of the construction directly, though the rent would usually reflect it. The one exhibit moves $375,000 of cost between the parties.
Variations and Edge Cases
A work letter behaves differently depending on delivery method, allowance terms, and completion mechanics. The table below covers variants an operator should confirm before relying on one.
Variant | Treatment |
Turnkey | Landlord builds to an agreed finish; tenant funds no direct construction |
Allowance | Landlord funds a per-square-foot budget; tenant manages the build |
Allowance shortfall | Costs above the allowance are the tenant's, paid out of pocket |
Unused allowance | May be forfeited, credited to rent, or applied to soft costs, per the letter |
Rent commencement | Often tied to substantial completion, so build delays move the rent start |
Work Letter vs Tenant Improvement Allowance
A work letter is often confused with a tenant improvement allowance, but one contains the other. A work letter is the full exhibit governing who designs, builds, delivers, and pays for the space, including the delivery condition and rent commencement trigger. A tenant improvement allowance is a single term inside many work letters: the dollar-per-square-foot budget the landlord contributes toward the build-out.
The distinction is scope. The tenant improvement allowance answers only how much the landlord pays. The work letter answers everything else the allowance does not: what the landlord builds, what the tenant builds, the standard the space must meet at delivery, and the event that starts the rent clock. A turnkey work letter may set no allowance at all, because the landlord builds the space directly.
Frequently Asked Questions
What does a work letter cover in a commercial lease?A work letter covers the construction of the leased space: the space plan and finishes, the split between landlord's work and tenant's work, any tenant improvement allowance, the delivery condition, and the trigger for rent commencement. It is usually attached as a lease exhibit and governs how the space is built before the tenant occupies it.
What is the difference between a work letter and a TI allowance?A work letter is the whole exhibit governing design, construction, delivery, and cost of the build-out. A tenant improvement allowance is one term inside it: the per-square-foot budget the landlord funds. For U.S. office space, that allowance typically ranges from $15 to $80 per rentable square foot, per The Cauble Group. A turnkey work letter may set no allowance at all.
When does rent start under a work letter?Rent commencement under a work letter is often tied to substantial completion of the landlord's work or delivery of the space in the agreed condition. Because the trigger depends on construction, delays in the build-out push the rent start date, which changes the effective economics of the lease.
Related Terms
Tenant Improvement Allowance
Commercial Lease Agreement
Lease Abstract
Demising Wall