Should Property Investors Pull Permits on TI Rework?

By Randolph T. Mason, CCIM, SIOR, Managing Partner, Commercial Realty Specialists

The question of whether a property owner should pull a building permit when they are performing tenant improvements often comes up during the negotiation phase of a real estate transaction. Pulling a building permit can add a substantial amount of cost to a construction project. The decision to pull a permit often comes down to whether the work being done is substantial enough in nature to justify the expense for construction drawings, permit fees and all of the other ancillary costs that the city would require. If the landlord is doing construction on a single-tenant type of building and the work does not justify the additional cost, the landlord may choose to accept the risk that lack of a building permit would create.

Should a landlord need to perform work on a multi-tenant building, the risk of not obtaining the appropriate permits may outweigh the benefits. Recently, I heard of a tenant that was occupying a suite below another suite that was having work performed on it. We will call the bottom occupier Tenant “A.” Apparently, Tenant A had some sensitivities to the dust particulates that were being generated by the construction site and went upstairs to see what was happening. It was determined that the landlord had not pulled permits, which opened a can of worms for the landlord. Tenant A had air samples and other tests done, called in government agencies and created a fiasco for the landlord. Had the landlord pulled permits, there may not have been such a dramatic repercussion from the appropriate governmental agencies.

It is important for owners and investors to protect their assets and mitigate any potential losses, and pulling the appropriate city permits may be another way to protect themselves and their investment.