A tenant improvement allowance (also called a “TI” or “TIA”) is a landlords’ financial contribution for the proposed work within the potential tenanted space. This is an incentive a landlord may offer a tenant to lease space in their complex. A tenant communicates their build-out needs, and then a design is created. Afterward, a budget is formulated detailing the cost for the various components. This enables both parties to have a concrete understanding of the cost necessary to complete the space for delivery. The landlord or the tenant can pay in part, or in full, for the space improvements.

Three ways a landlord can structure a contribution:

1. A tenant improvement allowance can be stated as a flat dollar amount per square foot, which is typically influenced by the size of the space and the length of lease term.

If a landlord is making a financial contribution, they need to calculate the contribution into the rental rate so they are able to recoup this amount over the term of the lease. For this reason, most landlords are not willing to give a financial contribution for a shorter term lease.

2. The landlords’ contribution can be defined as part of the design of the delivered space.

An example for the design approach would be the landlord shall provide a lab with three fully functioning 6’ chemistry hoods and building standard carpeting in the office area.

3. The TI can also be a combination of the two previous scenarios.

This plan might include delivery of the labs in operable condition, plus a per square foot dollar allowance for flooring.

Tenants may also pay for all or some of the improvements over and above the cost the landlord is willing to pay. In order to ensure the proper quality and safety of their building, the landlord may perform the construction themselves. Or, the landlord may request to exercise approval of what vendors the tenant can use to complete the work. Tenant improvement dollars must be used for “hard costs” only, which means they improve the tenanted space.  All of these items are part of the negotiation process and vary from building to building and space to space.

If a tenant seeks an additional contribution from the landlord, the landlord may agree to do so with an increase to the rental rate. New Jersey lab buildouts are typically very costly, so finding a space with some existing infrastructure would be beneficial both economically and time wise.

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Please call for more information about current available laboratory space in New Jersey.

Jeanne Sabo Rothenberg, CCIM
Vice President
NAI DiLeo-Bram & Co.
Cell: (908) 377-9004
http://www.commercialrebroker.com/
jrothenberg@naidb.com