Tenant Improvement Allowances: What Costs Are Covered?

When negotiating a commercial lease, the tenant improvement allowance (“TIA”) represents a valuable point of leverage for offsetting the inevitable expenses involved with customizing a space. Landlords provide tenant improvement allowances to subsidize certain permanent alterations that effectively increase the property’s value. But what specific costs qualify for the TIA? 

Here’s a basic overview of what tenants need to know.

1. Base Building Upgrades

Modifications to the existing shell and structure often represent costs appropriately borne by the landlord through the allowance. Common base building improvements covered include:

  • Demolition costs preparing existing layouts

  • New firewalls, external walls, and doors with finishes 

  • Rough flooring preparation for new coverings  

  • Modifications to base HVAC, plumbing, and electrical systems

  • Upgraded main lighting layouts and fixtures

  • Accessibility improvements related to entryways 

Assessing base building needs early allows proper inclusion for funding requests from the onset of negotiations.

2. Finishes and Fixtures

Many of the visible interior enhancements helping branded tenant spaces stand out qualify for TIA usage as well. Typical finish and fixture improvements which landlords accept covering involve:

  • Floor coverings like wood, tile, stone, or carpet

  • Specialized ceilings including drops, textures, and lighting grids

  • Wall treatments such as framing, drywall, finishes, and paint

  • Lighting fixtures such as track lights or dimmable LEDs  

  • Plumbing additions like commercial grade sinks

  • Cabinets, shelving, and partition walls

Proposed finishes and fixture upgrades should suit the building quality so longevity is ensured.

3. Tenant-Specific Equipment and Configuration

What if tenant improvements involve specialized equipment to enable business operations? Contributions here become more case dependent. Items often included are:

  • HVAC equipment tied directly to the business function

  • Commercial grade kitchen equipment like hoods and grease traps

  • Data/telecom wiring and cabling for tenant networks

  • Security installations like camera systems or access control

  • Bank grade vaults or reinforced tenant storage 

Even some tenant-specific spatial layout changes like adding enclosed conference space may qualify.

4. The Critical Exclusions

What doesn’t the typical TIA allowance cover? Alongside obvious costs like purchasing furniture, landlords usually exclude:  

  • Inventory or supplies with no permanence  

  • Point-of-sale systems or technology purchases  

  • Loose furnishings like workstations or seating

  • Signage with highly branded identity or finishes

  • Permitting, architectural, or legal fees   

  • Relocation expenses like disassembly/reassembly 

Unless tenants can demonstrate such excluded facets provide landlord value, these remain out-of-pocket tenant responsibilities.

Conclusion

To summarize, most base building modifications, necessary mechanicals/ADA upgrades, and interior constructed elements that contribute to long term functionality are reasonable TIA expenses to propose.

But aim to exclude customizable cosmetics or temporary finishes when submitting for reimbursement. Knowing these intricacies in advance allows tenants to direct landlord contributions to the right places. And also ultimately enhances win-probability when negotiating the TIA.

Check out the video below for more information on TIAs and how they work!