Today's Tenant Rep Tuesday Tip topic: What is a Tenant Improvement Allowance?
We will dig deeper into all the information surrounding a Tenant Improvement Allowance (TI Allowance):
- What exactly is a Tenant Improvement Allowance (TI Allowance)
- Why TI's do not cover all Tenant costs and expenses
- What TI's do cover
- What TI' do NOT cover
What is a TI Allowance?
A tenant improvement allowance is funds given from a landlord to a tenant to help pay for improvements and/or construction to a lease space in association with moving into or signing a new lease. The allocated amount of the allowance is negotiated as part of the lease terms, along with a detailed outline of what the funds can be spent towards.
The tenant improvement allowance is generally calculated based on dollars per square foot.
A tenant improvement allowance typically does not have to be repaid (it is a component of the other deal terms associated with the lease), so it can be beneficial for a tenant when signing a lease.
So why don't TI's cover all Tenant Costs and Expenses?
A common misunderstanding in the build-out process is that the tenant improvement allowance is intended to cover all the costs associated with a space. Unfortunately, that is not the case. There are some things excluded from the TI allowance.
While a tenant factors in costs associated with a new lease and moving, such as data cabling, furniture and interior decor, the landlord is strictly concerned with the improvements that will make a direct impact on the value of the building. Therefore, unlike furniture, improvements such as new walls and doors will leave a longer term value on the building that the landlord will see a direct impact from down the road.
Because of this, most landlords restrict what the TI allowance can be used on.
What does the TI Allowance Cover?
A landlord will allow construction costs directly affecting the improvement to the tenant's space.
These can include, but are not limited to:
- Flooring (Carpeting)
What is NOT included in the TI Allowance?
Landlords are less likely to let a tenant use their tenant improvement allowance on miscellaneous expenses specific to the tenant’s wants or needs.
Some of the items featured are:
- Moving Expenses
- Data Cabling
- Interior Decor
Securing a tenant improvement allowance as part of the overall lease and lease language can be beneficial to a tenant, but it is important to understand that it is not intended to cover 100% of your all-in costs when securing a new space.
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