{"id":7292,"date":"2022-02-17T22:36:55","date_gmt":"2022-02-18T04:36:55","guid":{"rendered":"http:\/\/coydavidson.local\/?p=7292"},"modified":"2026-04-03T06:57:12","modified_gmt":"2026-04-03T11:57:12","slug":"negotiating-the-tenant-improvement-allowance","status":"publish","type":"post","link":"https:\/\/coydavidson.com\/coydavidson\/negotiating-the-tenant-improvement-allowance\/","title":{"rendered":"Negotiating the Tenant Improvement Allowance"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"7292\" class=\"elementor elementor-7292\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"has_ae_slider elementor-section elementor-top-section elementor-element elementor-element-3ac1e006 elementor-section-boxed elementor-section-height-default elementor-section-height-default ae-bg-gallery-type-default\" data-id=\"3ac1e006\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"has_ae_slider elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-1a5e7046 ae-bg-gallery-type-default\" data-id=\"1a5e7046\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-2610dc54 elementor-widget elementor-widget-text-editor\" data-id=\"2610dc54\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<div class=\"et_pb_module et_pb_text et_pb_text_0 et_pb_text_align_left et_pb_bg_layout_light\"><div class=\"et_pb_text_inner\"><h2>The Tenant Improvement Allowance, get as much as you can and maintain control of the build-out process<\/h2><p>A key component of any lease negotiation is the tenant improvement allowance provided by the landlord to build out or retrofit an office space for the tenant\u2019s specific use.\u00a0It&#8217;s expressed as a dollar amount per rentable square foot \u2014 and it&#8217;s one of the most negotiated, and most misunderstood, elements of any office deal.<\/p><p><strong>The allowance is not a check.<\/strong> It&#8217;s a credit against construction <a href=\"https:\/\/deq0lwah6h8rm.cloudfront.net\/hg\/files\/kirkseyarchitecture\/1c\/1c8a21ff-de0e-4629-b9b0-7f38f62c502b.pdf\" target=\"_blank\" rel=\"noopener\">costs<\/a>, typically paid to your contractor by the landlord as work is completed and invoices are verified.<\/p><p>The amount of the tenant improvement allowance, as well as the length of the lease term, has a significant impact on the negotiated rental rate<strong>.<\/strong><\/p><p>In addition to negotiating a favorable amount for tenant improvements provided by the Landlord, the ability to maintain control of the process is also important.<\/p><p>Tenant Improvement allowances provided by the building owner to build out or retrofit office space are typically structured in one of two ways:<\/p><ol><li><strong>Turnkey Build-out:<\/strong>\u00a0in this structure, the Landlord covers all of the cost of the tenant build-out as part of the agreed-upon rent and space plan generally outlining the scope of construction.<\/li><li><strong>Stated Dollar Amount:<\/strong>\u00a0in this structure the Landlord provides a stated dollar amount for the tenant to use toward building out the space, often to include architectural and engineering fees.<\/li><\/ol><p>\u00a0<\/p><\/div><p>When <a href=\"https:\/\/phi.eyf.mybluehost.me\/coydavidson\/mastering-office-lease-negotiations\/\" target=\"_blank\" rel=\"noopener\">negotiating<\/a> a lease, tenants would prefer not to come out of pocket for expenses related to building out the space. Many tenant rep brokers will often state their client wants a \u201cturn-key\u201d buildout, but what they technically should strive for is to eliminate or minimize \u201cout of pocket\u201d costs for the tenant, as well as maximize the value of the improvement allowance, based on the rental rate that is negotiated.<\/p><div class=\"et_pb_text_inner\"><h3>The Problem with the Turn-Key Approach<\/h3><p>The inherent issue with the turnkey build-out approach is that the Landlord is going to incorporate a significant amount of contingency cost into the construction cost estimates to prevent actual costs from exceeding the estimate. This could be a contingency of as much as 25-30 percent, in effect creating the potential for another profit center for the Landlord, if they efficiently manage the build-out costs. In some cases \u201cefficiently manage\u201d could be construed as \u201ccutting corners\u201d.<\/p><p>For example, if the Landlord estimates the cost of the build-out at $80.00 per square foot, and that is the allowance the negotiated rental rate is based upon, ultimately the Landlord is able to build out the space for $73.00 per square foot, then the tenant has in effect given up $7.00 per square foot that could have gone towards improvements to their premises.<\/p><p>Another issue with the turn-key approach is that the tenant is relinquishing control of the tenant improvement dollars being spent on their space. Unless the tenant negotiates an extensively detailed work letter based on a detailed set of full construction plans, it is not uncommon to have surprises in the build-out that do not favor the tenant.<\/p><\/div><\/div>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"has_ae_slider elementor-section elementor-top-section elementor-element elementor-element-350deee elementor-section-boxed elementor-section-height-default elementor-section-height-default ae-bg-gallery-type-default\" data-id=\"350deee\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"has_ae_slider elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-e5ce1c4 ae-bg-gallery-type-default\" data-id=\"e5ce1c4\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-f6709a2 elementor-widget elementor-widget-image\" data-id=\"f6709a2\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img fetchpriority=\"high\" decoding=\"async\" width=\"800\" height=\"450\" src=\"https:\/\/i0.wp.com\/coydavidson.com\/coydavidson\/wp-content\/uploads\/2022\/02\/Office-build-out.webp?fit=800%2C450&amp;ssl=1\" class=\"attachment-large size-large wp-image-65124\" alt=\"The Tenant Improvement Allowance\" srcset=\"https:\/\/i0.wp.com\/coydavidson.com\/coydavidson\/wp-content\/uploads\/2022\/02\/Office-build-out.webp?w=1200&amp;ssl=1 1200w, https:\/\/i0.wp.com\/coydavidson.com\/coydavidson\/wp-content\/uploads\/2022\/02\/Office-build-out.webp?resize=300%2C169&amp;ssl=1 300w, https:\/\/i0.wp.com\/coydavidson.com\/coydavidson\/wp-content\/uploads\/2022\/02\/Office-build-out.webp?resize=1024%2C576&amp;ssl=1 1024w, https:\/\/i0.wp.com\/coydavidson.com\/coydavidson\/wp-content\/uploads\/2022\/02\/Office-build-out.webp?resize=768%2C432&amp;ssl=1 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"has_ae_slider elementor-section elementor-top-section elementor-element elementor-element-40f64ad elementor-section-boxed elementor-section-height-default elementor-section-height-default ae-bg-gallery-type-default\" data-id=\"40f64ad\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"has_ae_slider elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-49f4d6e ae-bg-gallery-type-default\" data-id=\"49f4d6e\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-417917f elementor-widget elementor-widget-text-editor\" data-id=\"417917f\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h3><strong>Maintaining Control of the Construction Process<\/strong><\/h3><p>In most cases, I prefer negotiating a state dollar amount for the tenant improvement allowance and maintaining as much control as possible over the build-out process for the tenant. Office building owners will typically request a 3% \u2013 5% project management fee in the contract if they manage the build-out process addition, I request that the Landlord either waive or reduce their construction management fee and allow the tenant to retain their own\u00a0project manager\u00a0to oversee the design and construction process. Should you successfully negotiate the right to retain your own project manager, the landlord will still likely request an oversight fee of 1% \u2013 3%\u00a0 but an experienced tenant representative can be successful in negotiating this fee, mitigating your costs.<\/p><p>The objective is to shift control of the build-out from the Landlord to the Tenant which provides the ability to:<\/p><ul><li>Maintain quality control of the process and insure the construction is completed on time to prevent any holdover rent fees in the case of relocation<\/li><li>\u201cValue engineer\u201d as well as let the tenant reap the benefit of competitively bidding the construction contract to ensure you get the most value out of your tenant improvement allowance.<\/li><\/ul><p>\u00a0<\/p><p>If possible, it is also prudent to negotiate the right to amortize additional tenant improvement dollars into the rent should you decide to add additional improvements, or upgrades or incur an unexpected cost that runs over budget before your space is completed. You may elect to just to pay any costs over the allowance yourself, but it is nice to have that option.<\/p><p>In cases, where the scope of work only involves new carpet, painting, or moving a couple of walls, having more control of the process is not as critical. However, in any significant interior construction job, I highly recommend retaining your own project manager, who will typically capture savings that benefit the tenant rather than the landlord that far exceed the fee charged by the project manager.<\/p><p>Choosing the stated improvement allowance approach requires more up-front work by your real estate team to ensure the proper allowance is negotiated, but maintaining control of the construction process allows the tenant to realize the benefits of potential cost savings and maximize the value of their improvement allowance.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"has_ae_slider elementor-section elementor-top-section elementor-element elementor-element-487e548 elementor-section-boxed elementor-section-height-default elementor-section-height-default ae-bg-gallery-type-default\" data-id=\"487e548\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"has_ae_slider elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-8e3c112 ae-bg-gallery-type-default\" data-id=\"8e3c112\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-2e508c2 elementor-widget elementor-widget-text-editor\" data-id=\"2e508c2\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h3>Frequently Asked Questions<\/h3><p><strong data-start=\"72\" data-end=\"164\">How much tenant improvement allowance should I expect, and is more always better?<\/strong><br data-start=\"164\" data-end=\"167\" \/>The right allowance is not just about the number, it is about the economics behind it. Higher allowances are often offset by higher rent or longer lease terms. The goal is to maximize usable value, not just dollars. A well-negotiated deal aligns the allowance, rental rate, and term so the tenant minimizes out-of-pocket costs while preserving flexibility.<\/p><p data-start=\"525\" data-end=\"1017\" data-is-last-node=\"\" data-is-only-node=\"\"><strong data-start=\"525\" data-end=\"630\">Should I choose a turnkey build-out or take a stated allowance and manage construction myself?<\/strong><br data-start=\"630\" data-end=\"633\" \/>It depends on control and transparency. Turnkey can be convenient but often limits visibility into costs and design decisions. A stated allowance with tenant control typically delivers better outcomes, allowing competitive bidding, quality control, and potential savings. For more complex office or healthcare build-outs, maintaining control usually creates more value for the tenant.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>The Tenant Improvement Allowance, get as much as you can and maintain control of the build-out process A key component of any lease negotiation is the tenant improvement allowance provided by the landlord to build out or retrofit an office space for the tenant\u2019s specific use.\u00a0It&#8217;s expressed as a dollar amount per rentable square foot [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":58948,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"nf_dc_page":"","footnotes":""},"categories":[550],"tags":[415,406,525],"class_list":["post-7292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tenantrepresentation","tag-leasing","tag-office","tag-tenant-improvement-allowance"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.2 - 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