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Tenant Improvement Allowance & Buildout Costs

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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:

  • Paint
  • Flooring (Carpeting)
  • Doors
  • Framing
  • Windows

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
  • Furniture

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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