Glossary / Lease terms and deal stages
Also known as: TI, TIA, TI allowance, construction allowance
A tenant improvement allowance is money a landlord agrees to contribute toward building out or customizing leased space for a tenant, usually stated as a dollar amount per square foot or a lump sum. Costs above the allowance generally fall on the tenant.
Cove describes tenant improvements as "the alterations and build-out that customize leased commercial space for a tenant's use, frequently funded in whole or part by a landlord through a tenant improvement allowance negotiated in the lease." First National Realty Partners notes the allowance is expressed "as a lump sum or as a dollar amount per square foot," giving the example of $10 per square foot on 50,000 square feet, which equals $500,000.
Payment mechanics vary. According to Cove, allowances "are commonly paid as reimbursements after the tenant submits proof of completed work and paid invoices," though some landlords pay vendors directly or amortize the cost into rent. The rules for what costs qualify and when funds are released are usually set in a Work letter.
The allowance affects your commission in two ways. First, timing: a larger build-out usually means a longer gap between signing and move-in or rent start, and if part of your fee is payable at Occupancy or rent commencement, that gap is your wait. Second, amount: landlords weigh the allowance against rent and term, so a higher allowance may come with a higher rent or a longer lease, which can raise a commission calculated on total rent. Whether any allowance affects the commission calculation directly depends on the Commission agreement.
First National Realty Partners notes that higher rents, longer terms, and larger spaces generally support larger allowances.
When a deal has a large TI allowance, estimate the build-out timeline before you estimate when your commission will arrive.
For example, on a hypothetical 4,000 square foot lease with a $50 per square foot allowance, the landlord's contribution would be $200,000, and any construction cost above that would be paid by the tenant.
