How can you ensure tenant improvements do not negatively impact your property?

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Tenant improvements (TIs) are changes or additions to a commercial space that make it more suitable for a specific tenant's needs. TIs can range from minor cosmetic updates to major structural modifications, depending on the lease agreement and the tenant's business. However, not all TIs are beneficial for the property owner, as they may reduce the value, functionality, or marketability of the space. Here are some tips on how to ensure tenant improvements do not negatively impact your property.

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Mr. Georges A. Bou Jaoude

OWNER / CEO GAB LIQUIDATIONS & GARDEN MASTER BEDROOM SUITES

1 Set clear guidelines

Before you agree to any TIs, you should establish clear guidelines with your tenant on what types of changes are allowed, who is responsible for the costs, and how the work will be done. You should also review your lease terms and your local building codes to ensure that the TIs comply with them. You may want to include clauses that limit the scope, duration, and quality of the TIs, or that require your approval for any major alterations. You should also document the original condition of the space and the agreed-upon TIs in writing to avoid any disputes later.

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Mr. Georges A. Bou Jaoude

OWNER / CEO GAB LIQUIDATIONS & GARDEN MASTER BEDROOM SUITES
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Let's start by ensuring that the tenant understands our contract and the contents of that contract in full. We must address what we consider reasonable and allowable, to establish clear guidelines, the tenant must be made aware that all city and state building codes must be respected and complied with should the owner(s) or management agree to allow any such additions or changes to the properties original plans and conditions. Important clauses to add is who pays for what. document the original of the rented space, add photos as well, and the agreed-upon work requested in writing to avoid any disputes that may arise later.

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Robin Faison

Real estate broker, stager at ERA Live Moore Real Estate
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As a property manager for executive home properties, the tenant's choices enhance the appearance of the home and add value when the home is sold eventually. The challenge is figuring out how much money to spend on the tenant request. For example, my tenant wanted privacy so a decision had to made on how to screen a sliding glass door. When I went to Lowes Home Improvement, I was shown a sliding curtain/vertical shade combination. This made sense because this screening mode had the ability to work in a blackout way, a partial sunlight way, and then be pulled back completely for full visibility of the back yard. Initially the tenant wanted a new sliding door with a blind insert, however, he was pleased with the final result & so was I.

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2 Monitor the process

Once the TIs are underway, you should monitor the process closely to ensure that the work is done according to the guidelines and that it does not damage your property. You should inspect the space regularly, communicate with the contractor and the tenant, and address any issues or concerns promptly. You should also keep track of the progress, the expenses, and the permits involved in the TIs. If you notice any deviations from the plan, you should intervene and enforce the terms of the agreement.

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Mr. Georges A. Bou Jaoude

OWNER / CEO GAB LIQUIDATIONS & GARDEN MASTER BEDROOM SUITES
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Once the work is underway, you should monitor the process closely to ensure that the work is done according to the guidelines and that it does not damage your property. You should inspect the space regularly, communicate with the contractor and the tenant, and address any issues or concerns promptly. You should also keep track of the progress, the expenses, and the permits involved in the TIs. If you notice any deviations from the plan, you should intervene and enforce the terms of the agreement.

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3 Maintain the property

After the TIs are completed, you should maintain the property well to preserve its value and appeal. You should perform regular inspections, repairs, and upgrades to keep the space in good condition. You should also review your lease terms and your tenant's obligations regarding the maintenance and restoration of the space. You may want to require your tenant to pay for any damages or wear and tear caused by the TIs, or to return the space to its original state at the end of the lease. You should also evaluate the impact of the TIs on your property's marketability and adjust your rent and marketing strategies accordingly.

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4 Negotiate the benefits

Finally, you should negotiate the benefits of the TIs with your tenant to ensure that you get a fair return on your investment. You should consider how the TIs affect your property's value, cash flow, and occupancy rate, and how they align with your long-term goals. You may want to charge a higher rent, a longer lease term, or a share of the tenant's profits to compensate for the TIs. You may also want to retain the ownership and control of the TIs, or to have the option to remove them if they become obsolete or undesirable.

Tenant improvements can be a win-win situation for both you and your tenant, as long as you plan, monitor, maintain, and negotiate them carefully. By following these tips, you can ensure that tenant improvements do not negatively impact your property, but rather enhance it.

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5 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?

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How can you ensure tenant improvements do not negatively impact your property?

1

2

3

4

5

1 Set clear guidelines

2 Monitor the process

3 Maintain the property

4 Negotiate the benefits

5 Here’s what else to consider

Commercial Leasing

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How can you ensure tenant improvements do not negatively impact your property?

1

2

3

4

5

1 Set clear guidelines

2 Monitor the process

3 Maintain the property

4 Negotiate the benefits

5 Here’s what else to consider

Commercial Leasing

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