Tenant improvements are the renovations that a business tenant makes to its leased commercial space. This can include anything from adding walls for interior offices, restrooms, and flooring to lighting, service counters, and other fixtures. Unless a business is moving into a space leased by a very similar business, it is likely that a new commercial tenant will need to undertake some degree of work in order to make a newly leased space work for their business. Typically, a commercial lease will specify any work the landlord must complete before the tenant takes possession, and it may also address any improvements the tenant plans to complete in relation to the lease.
Some commercial leases may even include a tenant improvement allowance. A tenant improvement allowance is a set dollar amount that the landlord is willing to invest in the improvements that the tenant will make to adapt the space for the tenant’s business purpose. Why would a landlord invest in the tenant’s improvements? In addition to enticing a new tenant to adapt a space for a new purpose, under the terms of most commercial leases, the landlord owns those improvements even after the tenant moves out of the space.
In addition to providing the maximum dollar amount that the landlord is willing to contribute to the tenant improvements and defining the scope of these improvements, a commercial lease may also specify the timing and terms for payment of the tenant improvement allowance and may even specify certain standards for the work to be completed. Many leases provide for a tenant improvement allowance that is paid as a reimbursement to the tenant only after all of the work is completed and passes inspection, while others may provide for direct payments from the landlord to the tenant’s contractor.
Not all commercial leases include a tenant improvement allowance. If a business has the opportunity to negotiate lease terms for a tenant improvement allowance, such negotiations should be undertaken with care. Questions about your commercial lease? Please contact us. We’d be happy to help.
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