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Commercial Leasing Definitions – Tenant Improvement Allowance
May 6, 2011 by Justin Lee
TI Allowance or credit, is the negotiated sum a landlord is willing to spend to customize the space needs of a particular tenant. Typically found in the Leasehold Improvements or concessions section of a commercial lease, this type of negotiation is often stated in dollars per square feet and is present in standard office leases for commercial real estate in Houston.
Before a new lease or renewal is signed, if a current space has things like lighting, electrical outlets, ceiling tiles, and doors already in place because of a prior tenant or an existing tenant is wanting to renew a lease or expand – the landlord will typically be willing to negotiate a TI allowance substantial enough to replace carpeting, paint, and possibly move walls and/or replace doors. For a new lease with a new tenant, the negotiated TI allowance can often be insufficient for all necessary improvements towards a space and the new tenant will pay a sum up front. This can vary, however, depending on what improvements are needed and what market rate TI allowance in $ per square feet the landlord agrees on.
A cookie cutter example that we’ve seen of how a landlord comes up with a TI allowance for a new Houston office rental would be as follows: The landlord agreeing to 1 month of free rent for every year of a lease term. If a tenant signs a 5 year lease, they would receive 5 months of free rent, and it could be up to the tenant how much of that free rent goes towards improving their space. Of course, as we always say, everything is negotiable depending on the landlord and prospective tenant. TI allowance is one of the key negotiation points in any commercial lease and one that a tenant broker is best suited to handle as he or she will know what the market is willing to bear.
See a previous commercial leasing definition!
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