The term “tenant improvement” means all of the changes made to the interior of a commercial or industrial property by the owner or the tenant to meet the needs of the tenant such as changing the flooring, wall coverings, may be interior walls and readjusting the layout to accommodate the tenant of that building. So what is a tenant improvement allowance?
Tenant improvement allowance is the allowance that a tenant has to alter the interior of a commercial building.
When a tenant organizes a commercial lease negotiation, there’s usually a tenant improvement allowance. This can be referred to as TA, TIA, or a TI allowance or even in some cases a leasehold improvement or cash allowance. This is an agreement from the landlord to compensate the tenant for all or some of the funds required to create a space that works with what the tenant is offering clients or customers.
Typically, this can be expressed in a per square foot dollar amount such as $25 per square foot or $50 per square foot of rentable space, etc. It typically applies to all construction-related work as well as any professional fees but will not include non-personal property such as furniture, cabling, relocation, or furnishings.
Typically, the tenant will spend their own funds on the buildout costs and the tenant improvement allowance can be provided as a reimbursement from the landlord or building owner. These payments can be installment payments as the work is completed or it can be in all one lump sum at the end of construction. Not all commercial tenants have to pay for all of the construction materials upfront. For instance, if a tenant has a 2500 square-foot location and a $40 per square foot tenant improvement allowance, this means that the tenant must cover the cost of the $100,000 in construction costs and then submit receipts to be paid after the area is fully completed. Someone usually has to make the cash flow to pay the contractor and the trades during the project before the tenant can be paid back by the landlord completely.
All of this is negotiable but this is what Viking Construction Group deals with on a daily basis. We hope to negotiate and work with the tenant and the landlord in order to create a space that is coherent with the building, appropriate for the business, and works within the total budget.
There is a slight difference between cash allowance and tenant improvement allowance. If cash flow becomes an issue, you might consider converting tenant improvement allowance to a cash allowance. This is paid upon a binding negotiation or execution of the lease. This means the tenant will have the funds upfront and can spend them without having a cash flow issue.
Every business is different and every landlord or owner is different so coming up with the right cash allowance or tenant improvement allowance is going to be on a case-by-case basis.
Viking Construction Group wants to work with landlords, owners, and tenets to provide the ideal space for whatever business opportunities all parties seek. Give us a call today for an over the phone quote or to schedule a consultation for your tenant improvement allowance.