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What Are Considered Tenant Improvements

If your strip mall, retail center, shopping center, or any other type of commercial real estate is relocating, you probably have some upgrades in mind to customize the new space to your specific business needs. For efficient business operations, these improvements are extremely important. It’s best to take the time to understand what tenant improvements are the associated TI allowance that you may be entitled to.

What Are Tenant Improvements?

In real estate terminology, tenant improvements are the commercial tenant upgrades a commercial property owner makes to rental space to configure it to the needs of the tenant. Part of the lease agreement, tenant improvements are typically paid for by the landlord in the form of tenant allowance.

The landlord agrees to pay the tenant allowance that would cover any improvements to the commercial space and in some cases, other expenses related to relocating. The allowance amount is in dollars per square foot.

You might be interested in knowing that as a tenant, you won’t normally be required to repay the TI allowance to the landlord. Therefore, it’s a wonderful incentive that you definitely want to secure and negotiate as much as you can.

What Comes Under Tenant Improvements?

However, it is important to understand that tenant improvements don’t cover absolutely everything for the new tenant. It would only pay for the commercial property improvements, and not for any decorations, new furniture, data cabling, etc.

In other words, TI improvements are subject to certain restrictions. They are directed towards the hard and soft costs of a project. Let’s take a look at what these costs are:

Hard Costs

Hard costs refer to any improvements that are left behind even after the tenant leaves, so that they benefit the landlord afterward. Examples of hard costs include installation of new doors and windows, paint, carpeting, walls, framing, plumbing, electric, and HVAC.

Soft Costs

Although soft costs are a necessary part of the build-out process, they won’t directly benefit the landlord after the tenant leaves. To ensure that these are covered under the tenant allowance, you’ll need to negotiate and have them separately included in the tenant agreement. A simple example of soft costs is the construction management fee.

What’s Not Covered Under the TI Allowance?

Landlords won’t let tenants use the TI allowance for miscellaneous expenses or costs of improvements that won’t benefit or deliver value to the next tenant. Some examples of these costs include moving expenses, electronic equipment, data cabling, furniture, fixtures, and equipment. Yet, there’s no hard and fast rule that these won’t get paid for at any cost. Some landlords do contribute a negligible portion of the TI allowance toward such expenses.

As for the Common Area Maintenance (CAM) Charges, they are paid for by the tenants, not by the landlord. However, the landlord is responsible for rendering the maintenance.

Retail Space In New York, Florida, and New Jersey

If you’re looking to relocate and are searching for a new commercial space, reach out to Milbrook Properties Limited. We have some amazing commercial real estate vacancies for you.


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