What information is contained in a tenant improvement allowance?

A tenant improvement (TI) allowance provides money from a landlord to a tenant to help fund renovations and buildout costs. 

The lease will specify the amount of the allowance, which is usually calculated based on the rentable square footage of the unit. It will also specify what expenses can be covered, and whether the landlord will provide the funds upfront as a cash allowance or reimburse the tenant after expenses are incurred, and the landlord is certain that no mechanic’s lien will be put on the property. 

What does a tenant improvement allowance typically cover?

A TI allowance generally covers anything that will boost the long-term value of real estate. This includes build-out costs such as the following:

• Framing and walls
• Partitions, doors, soffits, and extraneous windows
• Paint
• Carpet
• Electric, HVAC, and plumbing

Often, the allowance will also cover soft costs associated with renovations, such as architectural and construction management fees. This will be specified by the terms in the lease.

What isn’t covered by a tenant improvement allowance?

Landlords are typically not willing to foot the bill for expenses that won’t be useful to the next tenant who occupies a space. Examples can include:

• Furniture and fixtures
• Electronic equipment
• Internet and cabling setup 
• Moving expenses
• Other startup costs and equipment that is unique to your business