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.
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:
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.
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: