Most tenants looking to occupy a new space need some sort of build-out to accommodate their needs. This can include all industries such as office, industrial, and even retail. To make leasing a particular space more attractive, Landlords typically offer a “T.I. Allowance” to help sell you on signing a contract. So how can you use it best?
By minimizing your out-of-pocket expenses, a TI allowance can help you create a space that fulfills your particular requirements or preferences. With this information at your disposal, you can negotiate favorable terms with your landlord to create the best-customized space for your company.
How is TI allowance calculated?
Typically, a TI allowance is negotiated into the lease before signing and is expressed in either a dollar per square foot amount based on the size of the unit or a total dollar sum.
As an example, imagine that an owner agrees to a $35 per square foot TI allowance. In a commercial office space that is 12,000 square feet, that equals $420,000 in total. However, if the landlord bases their allowance on usable square footage and you have 11,000 usable square feet then your TI would only be $385,000.
Landlords typically offer a competitive TI allowance with corresponding rates from other buildings in the area. Surprisingly, the landlord may also take into consideration, who the tenant is, their credit, and their history as a tenant.
What Does a Tenant Improvement Allowance Cover?
Owners are more likely to prefer that a TI allowance covers basic construction costs, whereas tenants generally try to expand it to cover additional costs including permit fees, legal fees, architectural fees, and labor. Again, the specifics of what is covered should be negotiated as part of your lease agreement.
Keep in mind that costs related to moving fees, internet, cabling setups, and décor and furniture are not usually included in the TI allowance.
Sometimes, you can negotiate that if your project is completed under budget, any remaining funds can be applied to either future improvements or some other use associated with the lease, such as free rent.
How To Get The best bang for your buck?
It is important to get an accurate build-out cost so you can evaluate your out-of-pocket expenses that may go beyond your TI allowance. At Wildmor Advisors, we always negotiate the best commercial real estate deal for your goals by running predictive analytics giving you an idea of the total cost of your project for the length of your lease. We then keep your goals top of mind and go back to the landlord for negotiations.
Our best advice to you is to work with a team like ourselves, who specializes in tenant representation. Don’t leave money on the table by not having an advocate by your side!
