A build-to-suit (or design-build) lease is essentially a landlord/developer’s agreement to construct a purpose built building, usually for a single tenant. The landlord will typically own or ground lease the lands (and once constructed, the building) and has the option of re-letting the building to a new tenant upon the expiry of the term of the build-to-suit lease to the original tenant. Build-to-suit leases typically are for a longer term than a normal lease in order to permit the landlord to recoup its investment over the duration of the lease term.
A build-to-suit arrangement is essentially comprised of two agreements: (i) a development or construction agreement, the result of a request for proposal (“RFP”) process, which defines the relationship between the landlord and tenant from the design through to the construction of the building; and (ii) a lease agreement, which stipulates the terms of the occupancy post-construction. In some cases, the provisions regarding the construction of the building are included in the lease itself or captured in an accompanying “work letter”. The construction aspect of this arrangement is usually the key issue and the most complicated, warranting close attention to the landlord’s and the tenant’s responsibilities in this regard.