Tenant Improvements, also called Leasehold Improvements is customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. These include changes to walls, floors, ceilings, and lighting, among others.
We’ll start with an overview of the TI (Tenant Improvement) negotiation process and then work our way through the construction project overview.
The Turn-Key Build Out – Its a great situation for tenants, but its becoming more difficult to find as economic situations improve and there is increasing demand for space.
Rentable vs. Usable – This discusses per square foot allowance tenants may be given for improvements and how that relates to rentable space, including common area, and usable space.
What’s Included – Does the TI allowance include materials, repainting walls, doors, HVAC, architectural, permits, project management, etc.? How is the allowance disbursed? Some TI’s may include furnishings. It’s also possible that some of the allowance may be used at a later point in the lease if not used immediately.
Substantial Completion – It’s important to make sure that timing of the completion and usability of the rental space coincide with the beginning of rental payments by the tenant. Many factors may influence this timeline including permitting, architecture, construction, etc.
Additional Costs – There may be cost overruns on the improvements. It’s important to have a mutually agreed upon approach and plan in place for this contingency. Is there a buildout allowance cap? Are there associated project management fees, etc.?
Once you have discussed and negotiated the tenant improvements it’s time to begin the construction planning and management of the project.