How do you manage tenant improvements in commercial spaces?

1 Understand the TI allowance

The TI allowance is the amount of money that the landlord agrees to contribute towards the TIs, either as a lump sum or a per-square-foot basis. The TI allowance is usually determined by the market conditions, the tenant's creditworthiness, the type and extent of the TIs, and the length of the lease. The TI allowance can be paid directly to the tenant, to the contractor, or to a third-party escrow account. The tenant should negotiate for a reasonable and sufficient TI allowance that covers the cost of the TIs and does not result in excessive rent increases or hidden fees.

2 Plan the TI scope and budget

The TI scope and budget are the detailed specifications and estimates of the TIs, including the design, materials, labor, permits, and contingencies. The TI scope and budget should be prepared by a qualified architect, engineer, or contractor, and approved by both the landlord and the tenant. The TI scope and budget should also include a timeline and a payment schedule for the TIs, as well as a clear allocation of risks and liabilities for any delays, defects, or changes. The tenant should plan the TI scope and budget carefully and realistically, and avoid unnecessary or extravagant TIs that may exceed the TI allowance or delay the occupancy.

3 Execute the TI work order

The TI work order is the contract that governs the execution of the TIs, including the roles and responsibilities of the landlord, the tenant, and the contractor. The TI work order should specify the quality standards, the inspection procedures, the change order process, and the dispute resolution mechanism for the TIs. The TI work order should also outline the warranties, indemnities, and insurance requirements for the TIs, as well as the penalties for non-compliance or breach. The tenant should execute the TI work order diligently and professionally, and monitor the progress and performance of the TIs regularly.

4 Manage the TI completion and delivery

The TI completion and delivery are the final stages of the TIs, where the landlord and the tenant verify that the TIs are done according to the TI scope and budget, and that the commercial space is ready for occupancy. The TI completion and delivery usually involve a walk-through inspection, a punch list of items to be corrected or completed, and a certificate of occupancy. The tenant should manage the TI completion and delivery efficiently and effectively, and ensure that the TIs are satisfactory and functional, and that the commercial space meets the lease requirements and expectations.

5 Optimize the TI depreciation and amortization

The TI depreciation and amortization are the accounting and tax treatments of the TIs, where the cost of the TIs is spread over the useful life of the TIs or the lease term. The TI depreciation and amortization can affect the income and expenses of both the landlord and the tenant, and have implications for the cash flow and profitability of the commercial lease. The tenant should optimize the TI depreciation and amortization strategically and legally, and consult with a professional accountant or tax advisor on the best methods and rates for the TIs.

6 Review the TI clauses and terms

The TI clauses and terms are the provisions in the lease agreement that relate to the TIs, such as the TI allowance, the TI scope and budget, the TI work order, the TI completion and delivery, and the TI depreciation and amortization. The TI clauses and terms can also include the ownership, maintenance, repair, and removal of the TIs, as well as the renewal, extension, termination, and sublease options for the lease. The tenant should review the TI clauses and terms thoroughly and carefully, and understand the rights and obligations of both parties regarding the TIs.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?