Who pays for tenant improvements? Scenario: The tenant likes the facility, but improvements will make it more efficient and operational—before moving in. The building owner typically makes the changes to a rental space as part of a lease agreement, and according to tenant needs. Whether it’s installing a new HVAC, adding furniture to an open office space, or improving the electricity, negotiating and paying for those improvements can be tricky. The landlord usually pays for it in one of a few ways:
▪️Tenant allowance is given, based on the square footage of the building and the tenant oversees the work.
▪️Tenant discount is offered. Example: a free month of rent (per lease year) gets redirected to pay for the improvement instead and the tenant oversees the project.
▪️Turn Key solution is offered: the tenant submits an improvement plan, the landlord oversees and pays for the work (which may not meet the tenant’s full expectations)
▪️A build out is offered by the landlord to the tenant, who chooses an improvement from the landlord’s list and absorbs the additional cost. The build out is often generic.
Reach out if you need advice on tenant improvements or a new CRE space: jonathan@lennard.com
