This summer, the Seattle Office of Economic Development created a $1.9 million Tenant Improvement Fund, which will provide grants of up to $100,000 to small businesses to be used for tenant improvements on commercial spaces. The goals of the program are twofold: 1) to entice small businesses to fill storefronts left empty as a result of the Covid-19 pandemic and 2) to support small businesses by helping to make commercial space more affordable. The deadline for applications for grants through this program is this week, on September 8 at 5pm.

Grant programs like the Tenant Improvement Fund are a rare way for small business to pay for tenant improvements. More often, a business is on its own in funding tenant improvements through loans, either directly from a bank or through the Small Business Administration (SBA).

In a commercial lease, “tenant improvements” are the modifications that a business makes to a leased space to fit its purposes. For example, a coworking space might want to add walls to create offices, create telephone booths for private conversation, build a simple office kitchen, and, of course, add restrooms. A restaurant would have a very different list of necessary tenant improvements, including adding a kitchen that both meets the restaurant’s needs and fulfills any applicable regulatory requirements.

A location rented for business purposes might be adaptable to several different types of businesses, with a restaurant, an office, or a retail space all being possible in the same location. This does not mean that any business will work in any space: landlords tend to care quite a bit about the type of business being operated on their property. However, it is typically up to the business, as a tenant, to take responsibility for any necessary modifications to a rented space. This includes working with an architect to design the improvements, applying for any necessary permits, hiring a contractor to do the actual construction, and financing the entire project – all before the business has even opened its doors.

Sometimes, a commercial lease will include a tenant improvement allowance. This is a clause in a commercial lease providing a set dollar amount that the landlord is willing to invest in improvements enabling a tenant to adapt the space for the tenant’s business purpose. Even if a commercial lease provides for a tenant improvement allowance, the dollar amount may not be sufficient to cover the cost of all the work necessary for the business to open its doors.

In addition, a commercial lease may establish timelines for the tenant to complete improvements and for the landlord to make any tenant improvement allowance payments. The timing of the payment of the tenant improvement allowance is an important detail. Sometimes the lease will provide that the landlord will pay any tenant improvement allowance directly to the tenant, but other leases require these amounts to be paid to the contractor. Often the tenant improvement allowance is a reimbursement paid by the landlord to the tenant after the work on the tenant improvements is complete.

Is your business contemplating signing a commercial lease? We’re happy to help!

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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