Tenant Improvements (TI)

Hello landlords and tenants I am here to discuss “tenant improvements” and what it means in a commercial real estate lease. My name is Jenna Zebrowski and I am the attorney behind LawbyJZ.com. Whether you call it TI or a build-out tentative improvements or anything else, it’s going to be whatever work is done to the leased space to make its usable for tenants business. 

It could be something as simple as paint and carpet, it could be a complete demo with brand new walls and ceilings. Sometimes the tenant pays for it, sometimes the landlord does, or each party might contribute to the costs. The tenant improvement allowance is Landlord’s contribution to tenants costs for the construction of tenantimprovements.  Tenant usually has to jump through some hoops, like lien releases, before collecting that Tenant Allowance, though, so make sure you’re following directions!

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Commercial Real Estate Case Study

Tenant Allowance: Is It Too Good To Be True?

Olivia had been a great tenant, but her space was old and some TLC, as well as a cash infusion to bring it up to code and to make it more functional for her evolving business needs. She was considering relocating to a newer space, but her rent would go up significantly and there would be the hassle of moving and notifying her clients.

The landlord didn’t want to find a new tenant for the space, either, because it was still going to have to be improved, no matter what, and it would be hard to find someone who was as suited to the space as Olivia’s business. She was a reliable tenant and always paid her rent on time.  

The landlord didn’t want to do the work, so he offered Olivia a tenant allowance, or to make a contribution towards the costs of the needed work, such as bringing the premises up to code and for the other work Olivia wanted to do to make the location for her business. Olivia would have the ability to control how the work was done in her space.

Olivia knew exactly what she wanted to do and was happy to take on the responsibility so she knew it would be done right and on her schedule. Olivia’s attorney recommended that she get bids for all of the work that she wanted done. That way, Olivia would know if the landlord’s offer was as good as it seemed. The offer would cover the costs of the work Olivia wanted to do, but would not be nearly sufficient for the work she was required to do to bring the location up to code.

Olivia was able to get the landlord to contribute more money to the tenant allowance because she was going to stay in the space and continue to be a good tenant. He saw the bids and realized he would have to increase the tenant allowance or he would be stuck finding a new tenant and paying the costs anyway. 

Olivia’s attorney helped her to get exactly what she needed- the right amount of money and control over getting the work done. The landlord didn’t have to take on any of the construction work, so it was a win for everyone.