5 Basic Things You Should Know About Tenant Improvements

  • 2 months ago
  • 1

Tenant Improvements

To make sure that your office space meets your needs and is necessary to your brand, tenant improvements are essential. When it comes to leasing space for your company and employees, it’s critical to understand what a TI is and what types of upgrades you may expect. It’s difficult to come across an office space that is both ready to move into and perfectly suited to your company’s needs. As a result, most offices undergo some changes and improvements.

You should know five fundamental things regarding tenant improvements to ensure that you can turn your office space into the finest possible environment for your company.

Tenant Improvement Or Ti

Tenant improvements refer to renovations or customizations made to a property for the benefit of the tenant. A tenant improvement allowance also referred to as a TI, TIA, or TA is a sum of money granted by the landlord to the tenant in advance. This money is used to cover all or part of the construction costs. TI is usually represented as the amount of money spent per square foot or as a percentage of the total.

Most landlords provide a tenant improvement allowance to pay for commercial leasehold improvements. Tenants are responsible for the difference if the cost of the modifications exceeds the TI allowance.

A TI lets a company customize a leasing area to meet specific needs. The TIs include things like an extra bathroom, conference rooms, drop ceilings, and painting. TI allowances do not cover dental chairs and cabinets, medical procedure tables, or industry-specific lighting, so add them to your moving expenses.

Tenant Improvements: Five Things You Should Know

1. Completely Finished Buildout Or Turn-Key Buildout 

A ‘turn-key’ buildout, in which the upgrades are expressly stated and the landlord simply conducts the permitting, and construction, obtains occupancy permits, and pays for everything, is the best position a tenant may have for improvements. This is more common in soft office markets.

2. Usable Vs. Reusable

Many tenants are surprised when they learn how much commercial real estate improvements cost. It’s usually more than what they expected. When landlords don’t provide a “turn-key” buildout, they’ll either point to specific improvements or limit their participation to a specific cash amount or price per square foot. The question of whether the cap is based on rentable or usable square footage is crucial. If the rentable is used, the tenant will receive an additional 16 percent or so because that 16 percent belongs to the building’s common areas. Based on the useable square footage within the Premises, the allocation is based on the actual square footage. 

3. Scope Of Work

Basic refurbishment may include repainting walls and doors (possibly staining wood), replacing flooring and base, replacing or upgrading HVAC and/or electric systems, replacing or upgrading ceiling grids and/or lighting, tearing down or erecting walls, installing built-in workstations or welcome desks, and more. Architectural, project management, and permitting fees are examples of soft costs.

The allowance will be distributed according to the terms of the lease. It may be paid directly to suppliers, or it may be refunded to the tenant after the tenant has paid and the landlord has received the invoices. The allowance may also be specified in the lease and the quality of materials used. Allowances may be used for voice and data or furniture installations in certain instances. In other circumstances, the tenant may claim a portion of the allowance (if it is unused) at a later date within the lease period. Keep in mind that there may be a time limit on this. 

4. Significant Completion

It’s difficult to predict when a buildout will take place. In big markets, architects often produce drawings (not sketches) in three weeks, the municipality may take several weeks to approve the designs, and the contractor may require other several months to complete the job. In some circumstances, modest renovations can be completed in a matter of weeks.

Furthermore, some landlords may carry out major construction without obtaining the required permits, which can be dangerous. When it comes to the start of rental payments and the completion of the buildout, it’s always vital to plan. Whenever possible, do so after the work has been “substantially completed” and the Certificate of Occupancy has been received (and of course after any applicable free rent period).

5. Additional Expenses

If the landlord is overseeing the work under a buildout allowance cap, make sure that any project management oversight fees are kept to a minimum and that the work is divided among numerous contractors. This will stretch your allowance dollars. It’s also a smart idea to plan for any costs that exceed the allowance level. Some landlords will amortize this amount throughout the lease period, allowing the renter to avoid paying the balance in cash. This is the option that many tenants prefer.

This is a high-level overview of a critical procedure. Working with both a professional Tenant Representative and a commercial real estate attorney is the right approach to get the most out of a tenant improvement allowance. It’s also crucial to work with a “professionally minded” landlord who knows the procedure and stay away from those who aren’t.

If you are looking for medical office property for lease or have any inquiries regarding medical office properties, please contact us. Our team will help you with the best possible solution.

Join The Discussion

Compare listings