People understandably focus on basic numbers during tenant improvement negotiations. They’re looking at the rental amount per square foot, the size of the space, and the amount of the TI allowance. However, other smaller often-overlooked details can actually have greater financial implications. Many times these seemingly small details can outstrip whatever dollar or two you save on rent. Here are four things to watch for during leaseholder improvement negotiations.
Done For You vs. Dollars
With a turnkey agreement, space configurations don’t cost you anything out of pocket. A Turnkey TI offer might seem like the best deal at first glance. Just know that a landlord typically offers turnkey tenant improvements as a means to save money.
When a landlord offers you a flat turnkey amount, they’re basically banking that he or she can customize the space for less money than you think. For example, if you request $60 per square foot and the landlord presents a turnkey offer, they’re likely figuring they can build the space out for around $50 and pocket the difference. Unless there’s an ironclad work order in place specifying what’s to be built and the standards of quality it’s to be built to, a stated dollar amount TIA will generally get you more bang for your buck and a better space – even if you might have to initially pay out of pocket and wait to be reimbursed.
Who Is Doing the Work?
Landlords might also try to save money by getting control of the construction process. Sometimes they’re a builder themselves or they have a working relationship with a local contractor. There may be a price markup from them to you that benefits the landlord’s bottom line, not yours.
If presented with this offer, don’t rule it out, however, be sure to get an estimate or two of your own for comparison. You need to make sure you’re getting everything you can from your tenant improvement dollars.
Make Sure Measurements are Accurate
The size of your space impacts not only your TI allowance but your rent as well. Improper measurements giving you a larger space than you actually have will result in you paying a higher rent. For instance, a common area may be wrongly assigned to you. Although that same scenario gives you more tenant improvement money, you’re better off knowing the space has been properly sized.
So make sure your space is measured accurately. Then write into your lease that your TI allowance is to be based off the rentable square footage you pay for – not the usable square footage you occupy – to get some extra TI dollars.
Tenant Improvement Costs
Remember the old adage nothing in life is free? Keep that in mind when negotiating a tenant improvement allowance. A landlord will be looking at your lease’s total cost. Anything they give you as far as TI dollars has to be balanced out somewhere. Usually that’s by way of a higher rent now or scheduling rent increases. This is why it’s usually best to settle for fewer TI dollars and a lower rent than paying a higher rent longer term just so you get more TI money.