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How Do Tenant Improvement Allowances Work?

How Do Tenant Improvement Allowances Work?

Subscription services like Amazon Prime offer a free month trial and internet providers offer two years on a lower fixed rate to get new customers—it’s clear that business incentives workOne of the main incentives that many companies look for in a commercial location is a tenant improvement allowance. 

A tenant improvement allowance is the total sum of money or per-square-foot sum that a landlord is willing to spend so that a tenant can retrofit or renovateThis total amount is agreed upon during lease negotiations. 

We break down who does the work in the different types of tenant improvement allowances. 

Installing new floor in commercial office

Who Does the Renovation Work with a Tenant Improvement Allowance? 

Most often a landlord will coordinate all the work with a tenant improvement allowance. Landlords often have made connections that ensure building is done smoothly and with minimal impact on other tenants during the construction phase.  

They also likely know the building better. Landlords can inform contractors about any past work that was done and how to ensure the structural integrity of the building is maintained. 

When landlords have control over the improvements, they typically only cover the hard construction costs. Tenant improvement allowances typically don’t cover furnishings or moving costs. Generally, tenants will also need to cover permits charges or legal fees as well. 

When Tenants Have Control of a Tenant Improvement Allowance 

Tenants may have control over a tenant improvement allowance when the renovations or retrofit is a much larger project.  

Although tenants will have to source the work they need done, they have the benefit of being able to directly control how the construction looks. Plus, they have the ability to directly control budget changes, material and finishes upgrades, and the timeline of the project itself for commercial tenant improvements. 

A tenant improvement allowance is a highly valuable incentive for many businesses and if negotiated effectively, can provide significant value to both landlords and tenants. 



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