Using tenant improvement on commercial properties is a system an owner can utilize especially when considering long term leases. This can attract new tenants or keep existing ones and is often overlooked. Often the amount offered by the owner for the improvements are much lower and the tenant is left to pay the balance.
Generally, the improvements will be alterations to the interior of the building and there are lots of costs that are involved and can include, demolition, debris removal and much more. As a tenant, there are factors that one needs to consider so that you do not have a huge expense to pay at the end of the reconstruction
Some traps to avoid
Do not accept the terminology “as-is”. By accepting this term the tenant basically allows the landlord not to be responsible for conditions that the tenant may not be aware of. Every part of the building should be listed and that the rented space will be “broom clean” There are lots of conditions that the tenant will not know about until they have moved in such as malfunction of items which need to be restored to working condition by the landlord
Tenant improvements which can be done by the landlord. The term tenant improvements mean that the tenant is responsible for the costs. Realistically for tenants that are small and for any renovation work that does not require major construction, it is better if the landlord does these. This changes the responsibility onto the landlord and the tenants free rental period is not affected by any construction delays. It will also motivate the landlord to complete the construction quickly.
The term “cash allowance”
The first thing a tenant must realize is that there is no cash because the landlord does not pay any cash. What happens is the money that the tenant spends to construct their space is reimbursed by the landlord. This reimbursement is done on a monthly basis for the length of time that the construction takes place. The tenant needs to produce the appropriate receipts and 10% will be withheld until such time the landlord is satisfied and passed all the necessary inspections.
Pre-built
Pre-built does not mean a move in state. The tenant will still have to install all the cables and telephone installations will need to be done and at the cost of the tenant. It will also require for the tenant to provide all the furniture and be installed.
Build to Suit
Turnkey and New Building Installation basically mean the same thing. This is when the landlord builds the rented space to the specifications of the tenant. All this construction is at the landlord’s expense but is limited to the tenants building standards that already exist.
As a tenant read through the agreement carefully and if there is terminology that one is not sure of try and find an expert that will be able to advise. The last thing one wants as a tenant is a situation whereby you are lumped with additional costs that have not been budgeted for.
