by Michael Mannella, NAI Partners
There are many factors to consider when negotiating an office lease, but one of the most important components is the tenant improvement allowance (also known as “T.I.”). T.I. consists of a dollar-per-square-foot amount that the tenant is given by the landlord to build out their new office space, determined in part by the term and size of the lease.
The two different types of build-outs are either the T.I. allowance, or a turn-key approach. The turn-key route is one in which the landlord covers all costs after agreeing to a space plan with the tenant. Typically, for a smaller office tenant who doesn’t require a significant build-out, it can be easier to hand over this responsibility to the landlord. However, it is generally recommended that larger tenants negotiate an allowance, to help maintain control of the construction process with their own contractor and project manager.
Maintaining control of the project is key throughout the process. If a tenant is relocating, and not in control of the built-out process, it is not uncommon to fall behind schedule and incur holdover rent on one’s former space if the new space isn’t ready by the scheduled date. Additionally, it’s also advantageous to be in charge of the process from a budget control standpoint, especially if significant buildout is required.
Overall, sometimes a turn-key approach can be the best option for a tenant. However, when it comes to mid-size and larger tenants, it is frequently beneficial to select the T.I. approach to mitigate costs and maintain control. Doing so requires a firm negotiating hand, but ultimately the tenant will be better off in the end.