In a lease, landlords and tenants will agree to certain improvements to spaces, especially if the building is only an exterior shell. Landlords will provide either a turnkey build-out to a space without any interior fittings, or a tenant improvement allowance if a space is already retrofitted.
Turnkey build-outs are usually major enhancements to an area before a tenant moves-in. These allowances are paid by the landlord once both the landlord and tenant agree to certain changes. If the improvement cost is too high, the landlord may reject the proposal. If this occurs, a tenant can negotiate further, modify the plans, or offer to pay for part of the improvements, either up-front or through a higher rent.
On the other hand, tenant improvement allowances are landlord negotiated amounts stated in the lease that are used to customize an existing space for a tenant. This price is usually stated per square foot and can range in amount. These spaces normally already have interior walls, paint, electrical outlets, carpeting, and more.
In a lease, TI allowances usually increase with the number of years and square footage stated. If you lease a 1,000 SF office for five years, your TI allowance will be lower than someone who is renting a 50,000 SF office for ten years. For example, if a tenant was renting a 10,000 SF office and the improvement allowance was $15 PSF, then the tenant already has $15,000 promised by the landlord to improve the space however they choose.
We advise you to hire an architect to help you design the best office layout with your turnkey build-outs or tenant improvement allowances. The best office layouts increase productivity and good moods throughout the office. Excellent layouts can include open space to move around more easily, leaving room for future storage, and allocating the best areas for functional work space.
These allowances are one of the most negotiated points in a lease. Your tenant broker will make sure you receive the best TI allowance or turnkey build-out possible.