Tenant Improvement Build-Out: Draws, Lien Waivers, Timelines

The tenant improvement build-out process is the sequence of steps between signing a lease with an improvement allowance and handing the tenant a finished space: agreeing who builds what, approving plans, running construction, funding the work through draw requests backed by lien waivers, and closing out with a final inspection and retainage release. The allowance figure gets negotiated once. The draw schedule is administered for months, and it's where money leaks.

Here's how to run it so that the $500,000 you agreed to fund becomes $500,000 of finished space, with no liens, no double payments and no argument about the last cheque.

Landlord's work vs tenant's work vs turnkey

Before any money moves, the lease has to say who is building what. There are three arrangements, and mixing them up is the root of most build-out disputes.

The work letter, usually an exhibit to the lease, draws the line between landlord's work and tenant's work item by item. Where it is vague, the argument will be about whether the sprinkler drops, the electrical panel upgrade or the ADA restroom were "base building" or "tenant improvements". Every one of those is a $20,000–$80,000 question. Make the work letter specific enough that a contractor could price it without a phone call.

Two clauses to check in every allowance deal: what the allowance can be spent on (hard costs only, or design fees, permits and cabling too?) and when it expires. An allowance that must be used within twelve months of commencement is worth less than one without a deadline, and tenants regularly forfeit part of it by missing the date.

The build-out timeline from LOI to opening

A 10,000 sf office build-out with a $50/sf allowance runs roughly six to nine months from letter of intent to opening. Retail with a storefront and restaurant with kitchen ventilation run longer. This is the sequence, with the weeks that typically go missing.

Two things about this table matter more than the week numbers. First, the landlord's approval turnaround in phases 3 and 5 is on the landlord, and if the lease gives the tenant a "landlord delay" remedy (usually a day-for-day extension of the rent commencement date), every slow approval costs rent. Ten business days is a fair review period; put it in the lease. Second, the long-lead items in phase 6 should be ordered the day the permit is issued, not the day the framing is done. A twelve-week lead on electrical switchgear is normal in 2026, and it's the single most common reason a build-out finishes late.

Draw requests: what to require before you fund

A draw request is the contractor's (or tenant's) application for payment of a portion of the allowance, usually monthly, against work completed. The landlord's job is to make sure the money funds work that exists, that the people who did the work have been or will be paid, and that nothing funded is outside the allowance's permitted use.

The checklist for every draw:

Draw request checklist

1. Application for payment on a standard form (AIA G702/G703 or equivalent) showing contract sum, work completed to date, retainage, previous payments and the amount now due
2. Schedule of values broken down by trade, with percentage complete per line
3. Contractor's invoice matching the application
4. Subcontractor and supplier invoices for any line over an agreed threshold (typically $5,000–$10,000)
5. Conditional lien waiver from the general contractor for the amount of this draw
6. Unconditional lien waivers from the general contractor and every subcontractor and supplier for the previous draw
7. Site inspection by the landlord's construction manager or architect confirming the percentage complete is real
8. Confirmation the spend is an eligible cost under the allowance clause (hard costs vs soft costs vs FF&E)
9. Change order log with landlord approval on any change affecting base building or exceeding the allowance
10. Insurance certificates still current for the contractor and major subs
11. Permit and inspection sign-offs for the stage claimed (rough-in inspection passed before rough-in is funded)
12. Running allowance balance: allowance less draws to date less retainage held, so everyone can see what's left

Items 5 and 6 are the ones that get skipped when the contractor is pushing and the tenant is impatient. They are also the two that protect the building from a mechanic's lien.

Conditional vs unconditional lien waivers

A lien waiver is a document in which a contractor, subcontractor or supplier gives up the right to file a mechanic's lien against the property for work or materials covered by the waiver. There are four kinds, and the sequence in which you collect them is the whole discipline.

The rhythm: conditional this month, unconditional for last month, every month, from every party down to the flooring supplier. Fund a draw against an unconditional waiver from someone who hasn't actually been paid and you have a worthless document. Fund it with no waiver at all and a subcontractor the general contractor didn't pay can lien the building for work the landlord already funded. That is the leak the checklist exists to stop, and it happens more often than anyone admits, usually on draw three or four when the routine has gone slack.

Several states, California among them, prescribe the exact statutory waiver forms and make non-conforming waivers unenforceable. Others allow any reasonable form. Lien filing deadlines after completion also vary widely, from 60 days to 8 months. Ask counsel for the forms and the deadline in your state once, then put both in the draw checklist so nobody has to remember.

Holdbacks and the final draw

Retainage, or holdback, is a percentage of each draw the landlord withholds until the work is complete. Ten percent is standard; some jurisdictions cap it at 5% or require it to be reduced after substantial completion. On a $500,000 allowance funded over four draws:

The retainage release is a separate event with its own conditions, and this is where the file has to be complete. Before releasing the $50,000: certificate of occupancy (or the local equivalent) issued; architect's certificate of substantial completion; punch list signed off by the tenant and landlord; unconditional final waivers from the general contractor and every sub and supplier; as-built drawings, warranties and O&M manuals delivered; and the lien filing period expired or a title update showing no liens. Release the retainage on the strength of the certificate of occupancy alone and you have given up the only money that made the contractor finish the punch list.

When the allowance runs out: the overage

Build-outs go over. The tenant chose glass-fronted offices, the jurisdiction required a second exit, the switchgear price rose between bid and order. When the cost exceeds the allowance, the lease decides what happens, and it should say so before construction starts, not after.

Three arrangements are common. The tenant pays the overage directly to the contractor as it arises, with the landlord funding its allowance share of each draw pro rata. Or the tenant pays the overage to the landlord as a lump sum before the final draw. Or the landlord funds the overage and the tenant repays it as additional rent over the lease term, with interest. On an $80,000 overage amortised at 8% over 60 months, that's about $1,622 a month on top of base rent, and it needs to appear on the rent schedule and in the tenant's ledger from the first month it's due.

How the overage and the allowance are treated in the books, the amortisation of the allowance itself and the lease accounting consequences, is a different subject, covered in our guides to what a tenant improvement allowance is and how it's accounted for and managing TI allowances: accounting, amortization and reporting. This post stays on the operational side: agree the overage mechanism in the lease, get the tenant's written approval on every change order that creates overage, and keep the running balance visible on each draw so the overage is never a surprise at the final payment.

Tracking TI draws against the lease in NetSuite

The build-out produces a lot of paper: applications for payment, invoices, waivers, inspection reports, change orders. The failure mode is that it lives in a shared drive named after the tenant and nobody can answer "how much allowance is left?" without opening six files.

When the lease record carries the allowance as a commitment, each draw is entered as a bill against that commitment, retainage is held as a separate line, and the running balance updates automatically. Waivers and inspection sign-offs attach to the draw they support, so the audit trail for any payment is one click. Overage that is amortised becomes a rent schedule line on the same lease. That's how RIOO handles TI draws on NetSuite, with the lease, the payables and the rent schedule in one record. Whatever system you use, the test is the same: can someone who has never seen the project answer "balance remaining, retainage held, waivers outstanding" in under a minute? If not, the process is running on memory.

Frequently asked questions

Q1. What is a tenant improvement allowance draw?
A draw is a request to fund a portion of the tenant improvement allowance against construction work completed to date. It is supported by an application for payment, invoices, lien waivers and an inspection confirming the work exists, and is usually made monthly during construction.

Q2. What is the difference between conditional and unconditional lien waivers?
A conditional waiver gives up lien rights only when the stated payment is received; it is signed with the draw request. An unconditional waiver confirms payment has been received and gives up lien rights outright; it is collected after the payment clears, typically with the following draw request.

Q3. What is retainage in a tenant improvement build-out?
Retainage is a percentage of each draw, commonly 10%, that the landlord withholds until the work is complete. It is released after the certificate of occupancy, punch-list completion and final unconditional lien waivers, and gives the contractor a reason to finish.

Q4. Who pays if the build-out costs more than the allowance?
The tenant, unless the lease says otherwise. The overage can be paid directly to the contractor, paid to the landlord before the final draw, or funded by the landlord and repaid as additional rent with interest over the lease term. The lease should state which applies before construction starts.

Q5. How long does a tenant improvement build-out take?
Six to nine months from letter of intent to opening for a typical 10,000 sf office space, longer for retail, restaurant or medical uses that need specialised permits. Permit backlogs, landlord approval turnaround and long-lead equipment are the usual causes of delay.

Related reading

• What is a tenant improvement allowance and how is it accounted for
• How to manage tenant improvement allowances: accounting, amortization and reporting
• Vendor management and accounts payable for property teams