A tenant improvement allowance, or TI for short, is money that landlords agree to pay to offset the cost of construction of your space.
The TI money is usually calculated into the landlords financial model as a lump sum disbursement near the beginning of the lease term. This means they have to charge more rent in order to make their required return.
While many tenants would like to have this money available to pay construction cost, usually it comes as a reimbursement after the work is complete. So the tenant still needs to have funds available to cover the cost, until the TI money is disbursed.
When evaluating a proposed TI amount, it’s important to consider the state of the space when leased. If leasing a cold dark shell, some of the construction cost is going to be spent just getting the landlord’s space inhabitable, before building your improvements. Basic things like HVAC, bathrooms, and electric service can have substantial cost – especially in mixed use buildings where there may be occupied residential space above. These can eat up a TI allowance quickly.
TI can be a great incentive for choosing a space! Just be sure you understand what is required to receive the money and when it will be released to you.