If you recently leased commercial space, or are thinking of it, you also probably have some renovations you would like to make to your new space. One way to make these renovations is by using a Tenant Improvement Allowance, also known as a TIA or TI. But what exactly is a Tenant Improvement Allowance and how does it work?
A Tenant Improvement Allowance is a way for landlords to reimburse their tenants for renovations or modifications made to the space in order to fulfill the tenants needs. Landlords will use a TIA as an incentive to attract tenants and improve the space, especially since they typically do not have to be repaid. The terms of a TIA are negotiated on the lease itself, and include a detailed list of items that can be purchased under this allowance.
This amount is usually calculated in dollars per square foot, or sometimes a total dollar sum. This dollar amount is dependent on multiple factors, such as real estate market competitiveness, location, property condition, your credit and the amount of units owned by the landlord.
Landlords typically allow the tenant improvement allowance to be spent on hard costs, which are things that will be left behind once the tenant’s lease is up. Hard costs include expenses such as framing, HVAC, paint, doors, windows, carpet, walls, plumbing and electricity. They will also sometimes cover soft costs such as construction management fees, but this all to be negotiated and defined in the lease agreement.
Landlords usually do not cover expenses that are only specific to the tenant, that will be removed once the tenant leaves. These are things like furniture, fixtures, data cabling, moving expenses and electronic equipment. If neither the landlord nor a new tenant will benefit from the improvements, they will not be allowed in the tenant improvement allowance.
Tenant improvement allowances can be very beneficial to tenants, as well as landlords. While there are many factors that contribute to the amount given in the allowance, each part should be discussed and negotiated before being finalized on a lease. If you are considering renting a commercial space, begin to make a list of improvements and renovations you would like your space to have, as well as your budget, to make the lease negotiating that much smoother. You can contact us if you would like some help in navigating and negotiating your tenant improvement allowance.