Keeping Costs Low For A Tenant Improvement Allowance

Whether To Give Your Tenant Allowance For ImprovementA tenant improvement allowance is a common part of a commercial lease negotiation, where you – the landlord – provide a set of funds to allow the new tenant to build out or retrofit an office space to fit his needs. Tenants are drawn to opportunities like this because it allows them to get the most use out of your commercial property while they are under a lease contract. With this in mind, it is important for you to keep your costs low so you do not incur unnecessary out of pocket expenses. Here are some tips to help you do just that.

Choose A Stated Dollar Amount Structure

You have the option to make your tenant improvement allowance into a turnkey build-out or stated dollar amount. With the turnkey option, you are required to cover all of the costs of construction. In a stated dollar amount setup, you and the tenant get quotes from builders and inspectors to determine what the cost of the renovations will be. Then you pay that set amount or a portion of it. If you work in the turnkey scenario, you may pay significantly more for the same improvements.

Maintain Control Of Construction

You need to be involved with every aspect of the construction process. Make decisions about the construction that will improve the value of your property in addition to maximizing the usability for the new tenant. If an issue arises during the construction that will cost more money, you will need a contract ahead of time to determine who is responsible for that expense – you or the tenant. If you keep an eye on all that goes on in your property, you will be able to avoid bad investments.

Hire A Trusted Project Manager

Don’t trust the tenant to be the project manager for the build-out. You need to hire someone you trust to oversee the work while you are unavailable. This person will act as your liaison on site, ensuring that your overall vision is maintained. You need someone who is on your side to handle the project so you do not spend money on something you would not normally approve of.

A tenant improvement allowance agreement may take time to hash out, but doing so could increase your property value and allow you to secure more lucrative tenants. It’s a winning solution from every angle as long as you approach it in the right way.