Reading your Commercial Lease Part 7: Tenant Improvements - Who Pays for What and When
Navigating One of the Most Complex (and Costly) Lease Negotiations
Tenant improvement (TI) provisions determine who pays for customizing the space to meet your operational needs and can represent one of the most significant financial components of your entire lease agreement.
Understanding Tenant Improvement Allowances
A Tenant Improvement Allowance (TIA) is a sum provided by the landlord to fund improvements to the space. This allowance is typically expressed as a dollar amount per square foot.
Example: A 2,500 square foot space with a $40/SF TIA provides $100,000 for improvements.
Understanding TIA is more nuanced than simply knowing the dollar amount:
What TIA typically covers:
Architectural and design fees (sometimes)
Construction labor and materials
HVAC modifications
Electrical upgrades
Plumbing modifications
Flooring, paint, and finishes
Built-in cabinetry and millwork
What TIA typically does NOT cover:
Furniture and movable equipment
Technology infrastructure (in some cases)
Moving expenses
Signage (in some cases)
Above-standard finishes
TIA Negotiation Strategies
What to negotiate:
Maximum allowance per square foot relative to market conditions
Ability to apply unused TIA to rent reduction or other lease costs
Control over contractor selection and improvement specifications
Timing of TIA disbursement (avoid fronting costs for months)
TIA adequacy for your specific improvement needs
Distinction between landlord's work and tenant's work
Turnkey Buildouts vs. Tenant Improvement Allowances
Turnkey buildout: Landlord completes improvements to agreed-upon specifications before you take possession. Simpler, but less control over quality and timing.
TIA-funded buildout: You manage the improvement process using the landlord's financial contribution. More control, but more responsibility and execution risk.
Critical Improvement Provisions to Negotiate
Completion timeline: Clearly define when improvements must be completed and what remedies exist if deadlines are missed.
Work approval process: Define the process for approving construction plans, changes, and cost overruns.
Landlord's work vs. tenant's work: Clearly delineate who is responsible for which improvements.
Restoration obligations: Many leases require tenants to restore the space to original condition upon lease expiration. Negotiate to minimize restoration obligations, particularly for improvements that add value to the property.
Ownership of improvements: Clarify who owns tenant improvements during and after the lease term.
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