A tenant improvement allowance (TIA) is a common way commercial leasehold improvements are paid for. It involves the landlord paying a certain amount of money for renovations to get a business up and running.
Answers To Some Of The Most Commonly Asked Questions About Tenant Improvement Allowances
#1. What are commercial leasehold improvements?
Commercial leasehold improvements involve any sort of changes, remodeling, or modifications made to a space so that it is operable for business. This includes everything from electrical work to adding walls to create private office spaces.
#2. Does the landlord pay for commercial improvements?
Not always, but if they do there are four basic ways commercial improvements are funded through the landlord.
–The Tenant Improvement Allowance (TIA) involves a set budget presented by the landlord to make improvements. While the landlord shells out most or all the money, the tenant or a general contractor hired by the tenant typically oversees the work.
–Rent Discounts are discounts in rent for X number of months. These savings are expected to be used for improvements, additions, etc. that need to be made to the building. Discounts can be based upon the length of your lease, for example a landlord may offer 1 free month of rent for every year of your lease agreement. The build out is typically overseen by the tenant or a general contractor hired by the tenant.
-“Build Out” or Building Standard Allowance is a package offered by the landlord involving tenant-specific improvements. The tenant has the option to select which categories they’d like renovated, for instance new floors or new appliances. The tenant is responsible for paying for any improvements or additions that are not listed on the standard build out provided by the landlord.
–Turn Key involves the tenant submitting a design plan that highlights all necessary changes and improvements, along with cost estimates for each item. Under this method, the landlord pays for improvements and oversees the project, giving them a lot of control throughout the process.
#3. What is the average tenant improvement allowance?
An average tenant improvement allowance ranges between $5 and $15 per square foot. This might seem like a pretty big spread but that’s because a lot of factors predict how much money a landlord is willing to contribute towards interior office build outs.
#4. What are the pros to a tenant improvement allowance?
There are a couple key pros to tenant improvement allowances. First, it gives the tenant control over the outcome of the renovation. It is up to the tenant to select sub-contractors or a general contractor, as well as all materials they want used. Since the tenant has the greatest understanding and investment in his/her business, this is typically the best person to make big decisions. Secondly, since the tenant is overseeing the project from start to finish, there are less issues with quality control and budget.
#5. What are the cons to a tenant improvement allowance?
Drawbacks to a tenant improvement allowance include the extra time it takes to oversee the project. Plus, the tenant must wait until renovations are complete to start operating out of the location. Finding contractors to fulfill all your needs isn’t easy, in fact, it’s very time consuming. Hiring a general contractor can save you so much time. It can also save you money thanks to industry connections and ample experience.
#6. What factors influence how much a landlord is willing to pay for improvements?
There are a variety of factors that’ll impact how much money a landlord is willing to contribute to a tenant improvement allowance, including:
-The age of the property
-The location and type of property
-How many people are interested in the space, is it high demand?
-The landlord’s past experiences with tenants and what has worked before.
#7. What if project costs go over the TIA?
Any costs that exceed the tenant improvement allowance are to be paid in full by the tenant.
#8. Can you negotiate with your landlord?
Yes, you can negotiate TIA, which is typically listed under the “Improvements & Alterations” clause in your lease agreement. Carefully configure all necessary improvements and how much they cost. Bring these figures to the table when you discuss TIA. Keep in mind, the longer the terms of your lease the more leverage you’ll have going into negotiations.
Businesses that draw a lot of traffic are going to get more favors from landlords in terms of higher TIAs. The same goes for businesses in less desirable locations. For instance, an office building located in a small town in Missouri is going to offer more incentives than a high demand location in a busy city like Los Angeles, Miami, or New York.
PCI is here to help your interior office build out go smooth from start to finish! Contact us today to learn more about our superior general contracting services.