Tenant Improvement Allowance - tips for negotiation
Whenever a tenant takes up a lease on a property, renovations are often required prior to the tenant taking occupation. Depending on the condition of the property, this may be as minor as a simple paint and refresh, or as complex as an entire ceiling to floor renovation. During office lease negotiations one of the things that is likely to come up is how much the landlord is willing to contribute towards the renovation / build-out of the space.
This is the referred to as Tenant Improvement Allowance. The landlord's contribution will be quoted on a price per square foot. There are some things for you to bear in mind during lease negotiations to make sure you get the best deal, whilst also making sure that as a tenant, you retain a degree of control throughout the build-out process:
If the landlord has agreed to pay for a substantial amount towards the build-out project, they're likely to want a certain degree of control over project management. They may even want to use their own general contractor to carry out the works and decide on the scope of the works. Bear in mind that the more allowance you get, the more control you will lose.
If the scope of work requires a significant construction job, it may be better for you to negotiate a lower rent, and less improvement allowance in order for you have more control of the process.
When comparing several properties with different landlords, don't just focus on the rent they are quoting; take into account the entire transaction. When you do the math the overall costs could work out to be more cost effective when you take into account improvement allowances and other incentives.
Tenants should use the improvement allowance as leverage when negotiating their lease, as this can dramatically alter the overall leasing costs.
We always recommend tenants hire an architect to represent their interests and suggest a layout that will ensure the tenant improvement allowances are put to good use. Find an Architect in your location here >>
Negotiating the tenant improvement allowance can be one of the most critical parts of the lease negotiation process, and can significantly impact a tenant's bottom line.
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