A company’s ability to personalize itself can be a critical component to success, differentiating who they are and what they do from the competition. Through a unique product or service line, engaging marketing, or distinctive workplace and culture, organizations have effective solutions to help them separate from the competition and build competitive advantage.
From an office space perspective, a tenant improvement allowance (TIA) can help you establish that personalization, giving you the tools necessary to transform the space to match your own identity, augment its usefulness, and create an environment most conducive to your particular needs. Understanding what a TIA can do for you during your search and negotiations for new space can pay lasting dividends that serve your company, employees, and customer base well into the future.
For that reason, TenantBase is providing a brief synopsis of the benefits a TIA can provide, better equipping you during the search for your organization’s new home. Take advantage of these guidelines, never try to force your square peg of a company into a round hole, and use your leverage to maximize the benefits a tenant improvement allowance affords you.
If it’s been a while since your last office space search or you’re new to the process, a quick review of a tenant improvement allowance is well in order. TIA is an allotted amount of money that a landlord or property owner devotes towards space improvements for a new tenant. It is part of the negotiated lease and generally stated in dollars per square foot of space and doesn’t have to be paid back by the tenant .
Offered in two distinct varieties – an allowance type and turnkey – a TIA is most often used for aesthetic changes to the space or functional improvements including everything from paint color and lighting fixtures to wall removal and flooring. A TIA is a tremendous opportunity for an organization to personalize their new space, create a specific tone for the environment, and maximize its usefulness according to their particular operations.
Contrary to popular belief, a TIA does not provide unfettered access to improvement funds available for any purpose within the space. Instead, they are typically quite specific in their allowed uses which, as part of an effective negotiation process, a tenant can build into the lease as long as they are acceptable to property management. In general those uses can be divided into two main types – hard and soft costs. It’s important to note that TIAs are almost exclusively associated with hard costs.
Hard costs are those that cover direct improvement expenses. They include materials and supplies needed to make the improvements as well as the associated labor costs. Ancillary expenses like furniture, wall decor, plants, and other items not directly part of construction are not considered hard costs, making them more difficult to include during negotiations for a tenant improvement allowance but not impossible.
One of the focal points throughout the negotiation process should be the treatment of leftover allowance once the improvements are complete. Although landlords will always try to have any remaining TIA revert back to them after renovations, tenants should try to negotiate the leftovers be set aside for future use. As businesses grow and adapt to a changing marketplace, the need for additional changes to the physical space can easily arise, making the unused portion of a previous TIA especially useful.
Soft costs are indirect expenses associated with space improvements that include fees paid to an architectural or engineering firm, attorney costs, permit fees, insurance, and a variety of other expenses related to the improvements but not directly a part of them. Property managers generally try to avoid having soft costs included in a tenant improvement allowance as certain types can create tax implications for them.
That doesn’t mean that a tenant can’t or shouldn’t attempt to include soft costs into their TIA. If successful, soft costs covered by an allowance can be especially useful for furnishings and office equipment, or even particular ongoing expenses like maintenance, security, and other costs involved in general upkeep. Please note that LEED certification for the construction component of office improvements is often considered a soft cost even though it directly affects hard expenses. Therefore, if important to the tenant, lease negotiations should specifically cover any additional costs associated with LEED.
Once negotiations are complete and you're ready to make the most of your tenant improvement allowance, there are a handful of things to keep in mind as you proceed. Start with a plan that includes goals, timelines, budget restrictions, and anything specific you expect to accomplish during the renovation process.
When establishing your plan make certain to take future needs into mind. Your TIA isn’t a bottomless resource and should be used as efficiently as possible taking growth and shifting demands into account to continue representing your brand, aesthetic, and culture well. Even if the landlord gave you oversight permission throughout the build-out, make sure to always keep them apprised of progress and any issues that arise. Maintaining a good relationship with property management is another essential component to getting the most from your new space.
A tenant improvement allowance can dramatically increase the benefits your organization gets from your new space. Using an experienced TenantBase advisor as part of the overall process – from your search for space to lease negotiations and all points in between – can help your company get the very most from its new home, personalizing the space, and establishing a solid footing for a prosperous future.