What is a Tenant Improvement?

Tenant improvements (TI’s) are very important if you want to make sure that your business space is customized to your needs and essential to your brand. Understanding what a TI is and what types of improvements are available is very important to know as you consider lease space for your business and team.

So what exactly is a tenant improvement?
The real estate definition of a TI (tenant improvements) is the customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant.

Who pays for commercial tenant improvements?
The most common practice is that the landlord pays for the commercial leasehold improvements with a tenant improvement allowance and if the cost of improvements exceeds that TI allowance, you pay the difference. It is usually expressed in a per-square-foot or total dollar sum, and this amount is decided upon during lease negotiations. Landlords do not have to offer any type of TI allowance, especially if the lease market is strong, but in recent years it has become a popular enticement for leasing space. Most landlords are flexible and will work with you to include TI overages bundled into the monthly lease cost should the allowance be exceeded, so make sure you ask a landlord if this is a possibility when planning ahead. This eliminates the need for you to come up with additional money for improvements over the allowance at the time of the lease initiation.

What are some examples of TI’s?
Every business has specific needs and TI’s enable them to customize a lease space to meet specific needs. Some examples of TI’s include adding walled offices, a break room or kitchen, an additional bathroom, conference rooms, drop ceilings and painting. Things like dental chairs and cabinets, medical procedure tables and industry specific lighting are not included in a TI allowance so you’ll need to include them in your list of expenses when moving into a space.

Moving in to a new leased property is an exciting time for improvements and change. Make sure you understand your tenant improvement clause and to get the most out of it.