Tips on negotiating your build-out allowance

In Atlanta, tenant improvements refer to a fixed amount of money specifically designated by the landlord to improve the tenant’s space. Occasionally, this money can be spent on other things such as furniture, fixtures, equipment or possibly additional free rent. Most Landlords, however, prefer that the money being offered as a tenant improvement allowance be spent on the actual space in which you will move.

Here’s what you need to know:

  • Landlords are in the construction business – they have contacts with all the people needed to make a buildout happen. They’ll take care of the construction component. Generally, you just take care of the rent and the voice data cabling.
  • Should you choose to take care of the construction component yourself, you can ask for a cash contribution from the landlord.

When comparing potential rental properties, it’s important not only to consider the amount of rent on the table, but also to consider what is called the tenant improvement allowance. When a tenant leases office space, renovations and re-configurations are usually necessary. These changes can be as small as a new paint color on the walls, or a gut renovation to transform the space. As part of your lease transaction, the landlord will generally contribute a fixed amount of money toward these changes. This is the tenant improvement allowance. Unfortunately for tenants, landlords don’t use any sort of standardized formula when determining the amount of the tenant improvement allowance.

When negotiating your tenant improvement allowance, make sure you understand what the landlord is using as a basis for construction. For instance, what portions of the common areas are to be built and expected to be paid for from your allowance? What percentage of your allowance is being allocated to architectural design fees? You do not want your entire tenant improvement allowance to go to common areas or to to disappear because of unforeseen fees.

Confused?

  • Building A offers you $18 rent and $30 for Tenant Improvement Allowance
  • Building B offers you $19 rent and $25 for Tenant Improvement

At first glance, the uninformed tenant would be drawn to Building A – imagine what you could do with such a high Tenant Improvement Allowance! However, upon further examination, you may learn that the higher advertised Tenant Improvement Allowance was necessary so that the landlord could update the basic systems – sprinkler head distribution, ceiling grids, wrap the common area corridor, etc.
Building B, on the other hand, while offering a lower Tenant Improvement Allowance, is a better deal. This is because the lower Tenant Improvement Allowance at Building B provides the dollars directly to the tenant for the build out of their new space.

Understand the “starting point” of your landlord’s building work.

Once you know the base, you can better understand which landlord is offering the best deal. A Tenant Improvement Allowance is practically irrelevant unless it is presented in relation to the current conditions of the building in question. Figuring out this relationship allows you to smoke out the real dollar amount you will have available for your build out.

If you will be leasing office space in the near future, looking for office space deals, let us help!

To find available office space, click Find Office Space

Posted on June 5, 2015 in Blog

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