New tariffs on imported construction materials—including steel, aluminum, electrical components, and finish goods—have now gone into effect. For commercial landlords, these tariffs are expected to drive up construction costs, create supply chain delays, and introduce new risks across lease transactions. The effects will be felt most acutely in connection with tenant improvements, delivery timelines, and operating expense pass-throughs. However, landlords have options to proactively address and mitigate some of the adverse impacts of the new tariffs.
The most immediate impact is on the cost and predictability of tenant improvement work. Landlords who offer turnkey buildouts are now exposed to potential cost overruns and delays beyond their control. With the price of key materials already rising, and labor costs also under pressure, landlords should consider shifting away from fixed turnkey obligations and instead offering a capped tenant improvement allowance. This approach gives landlords cost certainty while allowing tenants flexibility to manage their own buildout scope, schedule, and sourcing.
Supply chain issues tied to the new tariffs are also contributing to longer lead times for mechanical systems, specialty glass, lighting fixtures, and other essential materials. These delays can push back construction completion dates and interfere with delivery obligations under the lease. To manage this risk, landlords should revisit delivery provisions in their lease forms and consider extending outside dates, expanding force majeure definitions to expressly include tariff-related disruptions, and allowing for delivery subject to non-material incomplete items, so long as the tenant can occupy and operate.
Tariffs may also increase day-to-day operating costs. Many replacement parts and building components—such as HVAC systems, elevator parts, and energy-related equipment—are imported and now subject to higher costs. Landlords should review existing leases to confirm that these increased expenses are recoverable under operating expense provisions and to ensure that newer leases clearly define pass-through rights. In negotiating with tenants, landlords should be prepared for increased scrutiny over CAM charges and possible requests for caps, carve-outs, or exclusions related to capital items affected by market fluctuations.
Because construction now carries greater financial risk, landlords may also want to revisit tenant credit protections. For leases involving substantial landlord-funded improvements, consider requiring enhanced security in the form of larger deposits, personal guarantees, or disbursement conditions tied to construction milestones and lien protections. These measures help mitigate the risk of tenant default during the buildout phase, particularly in light of rising costs and contractor uncertainty.
With tariffs now in effect and construction costs rising, landlords should reassess how they structure lease incentives and manage risk in deal negotiations. Landlords should proactively review standard lease forms, revisit assumptions around delivery timelines and construction obligations. By taking steps now, landlords can limit their exposure to cost volatility and delays and position themselves to be more resilient in the midst of the current climate.