What is a Tenant Improvement Allowance Negotiation?
A tenant improvement allowance is an amount of money that a landlord gives to a commercial tenant so that they can renovate the rental space. It could involve installing new floors, painting the space, or upgrading the HVAC units, for example.
Tenant improvement allowances are negotiated between parties. If you need to know how to navigate the situation, read the rest of this article for clarity about key aspects of the arrangement to negotiate and how a qualified lawyer can help you formulate a legally sound and effective negotiation.
What are Common Negotiation Points in a Tenant Improvement Allowance?
A tenant improvement allowance usually involves the following key terms:
- Allowance amount. This could be a lump sum or rate that’s provided to the tenant for improvements.
- Coverage. There should be clarity about costs, like installing walls, flooring, or lighting.
- Exclusions. These include movable assets that don’t remain with the rental space, such as freestanding furniture.
- Deadline. You should seek clarity about the timeframe in which the tenant can complete improvements and what happens to any unused funds if deadlines aren’t met.
- Approval. The landlord might want to negotiate for approval rights, such as for the changes and hired contractors.
- Restoration (make good clause). This specifies if the tenant must leave the rental space in its original condition when the lease comes to an end.
What are Tips for Negotiating a Tenant Improvement Allowance?
When approaching a tenant improvement allowance negotiation, there are some things to bear in mind.
Consider Your Budget
The main allowance amount must be clear, as well as if it’s a lump sum or calculated as an amount per square foot. As the tenant, you want to ensure that you’ve calculated your budget beforehand to ensure the amount is sufficient.
Understand Costs and Coverage
If there’s ambiguity surrounding what improvements are approved for the allowance amount, you should query it with the landlord to understand exactly what is involved and what items are excluded.
Consider Unused Amounts
It could happen that the allowance isn’t used in full. You want to know what happens to it, such as if the amount is forfeited or it’s used as credit against rent. A tenant can negotiate this to make the deal more favorable, such as by using it for rent.
Think About Approvals
The plans must be approved by the landlord, who will want to have as much discretion as possible. The tenant, on the other hand, will want to limit this provision. To make the agreement fair, consider setting clear objective approval criteria and response deadlines. You could also specify rules for selecting a contractor.
Discuss Rent Commencement
If the landlord allows for a specific period of time in which the tenant doesn’t have to pay rent during the renovations phase, this can add value to the deal. You can use this option as a trade-off during the negotiation.
Do You Need a Lawyer to Negotiate a Tenant Improvement Allowance?
Although you can negotiate terms of your tenant improvement allowance yourself, asking a lawyer for assistance makes sense if you’re unsure of what’s involved and/or you’re dealing with a significant lease.
A lawyer will help you by conducting the following activities during a negotiation:
- Reviewing the tenant improvement amount and checking that it’s sufficient for the proposed renovation plans.
- Defining eligible costs so you’re sure of what the landlord will and won’t pay for, which will prevent future disputes.
- Negotiating for reimbursements and rent credits to help you gain a favorable deal.
- Negotiating approval rights with the landlord, such as regarding the renovation plans, contractors, and materials to be used.
- Ensuring that a rent commencement date is fair so that the tenant isn’t forced into paying full rent without being allowed to use the premises during the renovation, which puts them at a financial loss.
- Checking building requirements that could require you to spend more money than anticipated. Considering this before finalizing the arrangement will help you to prevent financial losses.
- Negotiating the improvement ownership and considering what happens to it when the lease ends. This provides clarity and can secure your ownership rights.
- Identifying and negotiating any hidden expenses, such as architectural fees, permit costs, inspection fees, and more.
- Redrafting your commercial agreement. If required, a lawyer will revise the agreement with the agreed-on terms from the negotiation so that the final agreement is clear and balanced, while being legally sound.
Where to Find a Lawyer for a Tenant Improvement Allowance Negotiation
If you need to hire a lawyer to help you negotiate aspects of a tenant improvement allowance, you don’t have to worry about where to find one. You can also sidestep calling traditional law firms in your area. Online legal platforms such as ContractsCounsel make it easy to access experienced and reputable lawyers who can assist you.
ContractsCounsel is one of the largest online legal marketplaces that connects clients with a curated network of vetted lawyers. All lawyers on the platform will be able to guide you through the process of negotiating your tenant improvement allowance. They can also review any associated agreements or contracts for clarity about the project and to prevent hidden risks.
Here’s how to request that a lawyer on the platform reviews your contract:
- Go to the ContractsCounsel marketplace, where it’s free to post a project.
- Choose ‘One-time project’ and ‘Contract review.’
- Post your project, including what you need so you match with the most suitable lawyers.
- Wait for bids. Lawyers on the platform will send you bids on your project. Instead of just one bid, you’ll receive multiple bids from which to choose a lawyer.
- Review the lawyer information. ContractsCounsel provides extensive lawyer data, such as the lawyers’ credentials, client ratings, years of experience, location, and expertise.
- Select a lawyer and hire them to review your contract for a flat fee.