What Is a Tenant Improvement Allowance?

The Covid pandemic hit commercial real estate hard in Canada over the last year or so. Many businesses dependent on foot traffic simply closed. The surge in remote work also makes businesses less dependent on office space.

Yet, not all is doom and gloom in the commercial real estate space. As the likelihood of easing restrictions looms large on the horizon, commercial real estate owners can expect at least a modest bounce back. Of course, a property owner can also encourage would-be renters with a tenant improvement allowance.

Not familiar with tenant improvement allowances? Keep reading for a quick overview of what they are, how they work, and their benefits.

What Is Tenant Improvement Allowance?

One of the major challenges with commercial spaces is that the space is never exactly right for a new occupant. Let’s say you run a video editing company. Any space you use will likely need an electrical upgrade to accommodate for the electrical draw of your computer equipment.

Since you only lease a space, you’ll want a leaseholder inducement to sweeten the deal. A tenant improvement allowance is that sweetener since the property owner offers to cover some or all of the costs of commercial renovation.

How Does a TIA Work?

The typical tenant improvement allowance follows a pretty straightforward pattern. The tenant and landlord sit down and negotiate over the projected cost of the renovations. If you settle on an agreeable figure, the tenant enlists an Edmonton commercial construction company to do the actual work.

The catch is that the tenant pays the contractor up front. Once the work is complete and paid for, the tenant gets reimbursed by the property owner.

A variation on this is when the property owner hires the building renovation company to make agree on changes to the space. This goes by the name of turnkey improvements, rather than TIA.

Who Benefits from a Tenant Improvement Allowance?

When handled correctly the tenant improvement allowance benefits both the tenant and the property owner. The tenant gets a space that fits their needs, which means a more useful and likely profitable space.

The property owner gets tenants into an unoccupied commercial space, which generates ongoing revenue. This does require some judgment and research on the part of the property owner.

You want a financially stable company for these agreements. Otherwise, you risk pouring a lot of money into a space only for the company to go under six months later.

Tenant Improvement Allowance and You

Whether your a property owner or a potential tenant, a tenant improvement allowance can prove beneficial for you. For property owners, it’s a powerful inducement that can secure a lease agreement with potentially great tenants. Just make sure you do your research ahead of time.

For potential tenants, it’s one way you can limit the initial costs of moving into a commercial space. While you do need enough liquid capital to cover the renovations, it’s a short-term investment.

Invicta Construction specializes in commercial tenant improvement projects. For questions or more information about our services, contact Invicta Construction today.


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