TI allowance refers to tenant improvements. A TI is any modification made to enhance usability of a commercial space for a tenant. Renovations, building modifications and space updates can all be classified as improvements, regardless of whether they’re for aesthetic purposes or necessary for building structural health. Typical TIs could be new paint and carpet, updated lighting, relocated walls, or an additional restroom. It might entail bringing a space up to “white box” condition or be as extensive as a complete buildout.
It is customary for a business occupying a new space to need at least minor modifications. The nature of the work and the economics of the entire lease transaction determines which party pays for the improvements. This will be negotiated along with other major terms such as rental amount and lease length. If the improvements are the landlord’s responsibility, the landlord may hire contractors to complete the TI work before the tenant takes possession. Alternatively, the landlord may provide a TI allowance, sometimes determined as a per-square-foot dollar amount. In this situation, the tenant can spend according to certain criteria and the landlord will reimburse them for the work completed. Sometimes the reimbursement comes in the form of waived rent over a period of time.
It’s in the interest of both the landlord and the business owner to create an environment that’s conducive to the business’s success, and a TI allowance is an integral part of the equation.