Tenant improvement allowances (TIAs) are greatly misunderstood. A TIA isn’t a cash advance. It’s an agreement between the landlord and tenant where the tenant gets reimbursed for any tenant improvement construction needed. The intent of this type of tenant build-out is to customize a space for their use. The caveat, however, is certain conditions must be met to be reimbursed by the landlord. This is why it’s important to know what is and what isn’t covered. This is the best way to ensure you don’t end up in a serious cash crunch that halts construction and your move-in or opening date. In this blog post, H.W. Holmes, Inc. – Los Angeles and Ventura area commercial construction contractors – look at what a TIA typically covers and what it doesn’t.
A common misunderstanding in any tenant build-out process is the allowance covers all renovation costs. While you’ll ideally want to negotiate a sizeable TIA, you need to understand that this allowance isn’t intended to cover 100% of your all-in costs.
A landlord will only be willing to reimburse you for improvements that increase the value of the space or the building. Furniture or decorations won’t do that. They benefit you and your brand more than the space as a whole. Comparatively, new walls, new doors, and new flooring will add lasting value to the building that could benefit the landlord down the road.
This is why a landlord will generally place restrictions on what the TIA can and cannot be used for.
What Your Tenant Improvement Allowance Covers
A landlord will usually allow a TIA to be spent on both hard costs (materials and labor) and select soft costs.
Some examples of TIA-covered hard costs include:
- HVAC, plumbing, and electric
- Framing and walls
- Paint and carpet
- Doors and windows
Some examples of TIA-covered soft costs include:
- Space plans
- Construction drawings
- Permitting fees
What Your Tenant Improvement Allowance Doesn’t Cover
Although it doesn’t hurt to negotiate, most landlords typically don’t cover miscellaneous expenses that benefit the tenant more than them. There’s no benefit to the landlord paying for things that won’t be useful or attractive to their next possible tenant.
Expenses a landlord may not contribute towards include:
- IT cabling
- Moving expenses
- IT cabeling
That said, again, it doesn’t hurt to negotiate with the landlord to cover at least some of these expenses. Some landlords might be willing to contribute a small portion of a TIA to these kinds of expense. Especially if they’d like to sweeten the deal for a tenant they’d like to lease to.
Build out costs, more specifically, who will fund them, are a huge deal if you’re about to lease a commercial space. It’s critically important to have these matters ironed out while negotiating your lease agreement and the verbiage of the attached work letter. Numerous pitfalls lurk for an unwary tenant that only goes through this process every 7 to 10 years. All relevant contingencies need to be adequately covered and addressed prior to signing any lease and beginning tenant improvement construction.
NEED TENANT IMPROVEMENT CONSTRUCTION IN LOS ANGELES OR VENTURA, CA?
H.W. Holmes is a Camarillo-based commercial construction company specializing in tenant improvement construction projects for both tenants and landlords. If you’d like a free estimate for your project, call us today at (805) 383-9929.