The tenant improvement allowance is a key component in any lease negotiation that is provided by the landlord to renovate or retrofit an office space based on the tenants’ requirements. Depending on the amount of the tenant improvement allowance, as well as the length of the lease term, it can have a significant impact on the negotiated rental rate.
There are typically two ways a tenant improvement allowance is provided by the building owners when it comes to the fit-out or renovation of an office space:
Turn-Key Build-Out: The landlord covers all costs of the build-out process as part of the agreed-upon rent and space plan that outlines the scope of the construction.
Stated Dollar Amount: This method typically sees the landlord provide a fixed dollar amount for the tenant to use towards the build-out space. For example, if the landlord estimates the cost of the build-out at $45.00 per square foot (and that is the allowance agreed upon in the negotiated rental rate) but the landlord only builds-out the space for $33.00 per square foot, then the tenant has lost $12.00 per square foot that could have gone towards their office improvements.
Another issue with allowing the landlord to control the improvement money is that the tenant relinquishes control of where the money is being spent within their space. It is not uncommon to have surprises show up during the build-out process that do not favor the tenant. This is where Truspace can bring high level of expertise and trust to avoid any potential costly outcomes.
In most cases, negotiating a stated dollar amount is the best way for tenants to maintain control and get the best value from their tenant improvement allowance. The tenant then brings in their own design building team to oversee the design and construction process.
Truspace has the experience and expertise to help with the tenant improvement allowance. We can review the space you are looking to rent and give you an accurate, no-obligation quote based on your office requirements. This will help capture the savings that benefit you – the tenant – and make sure your interests are optimally served.
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