The short answer A tenant improvement (TI) allowance is money the landlord contributes toward building out your space, usually quoted per square foot. You pay any cost above the allowance, either up front or, if negotiated, through higher rent over the lease term.
You lease 4,000 SF with a $25.00/SF TI allowance.
Allowance: $25.00 × 4,000 = $100,000.
Your contractor's bid: $140,000.
Gap you cover: $140,000 − $100,000 = $40,000.
What is the difference between turnkey and an allowance?
In a turnkey deal, the landlord builds an agreed plan at its cost and carries the risk of overruns. With an allowance, the landlord pays a fixed amount and you carry the risk above it. Turnkey is simpler when the plan is clear; an allowance gives you more control over design and contractors.
What is amortized TI?
Some landlords will fund more than the base allowance and recover it through the rent, with interest, over the term. It preserves your cash but costs more in total.
The landlord funds $20,000 of the $40,000 gap, amortized over 60 months at 8% interest.
Payment = P × r ÷ (1 − (1 + r)−n), where P = $20,000, r = 0.08 ÷ 12, n = 60.
Monthly payment: $405.53, added to rent. That is $405.53 × 12 = $4,866.36
per year, or about $1.22/SF on 4,000 SF. Over 60 months you repay about $24,332 for $20,000 of work.
Who manages the construction?
Either side can. If the landlord manages, ask what management fee is charged against the allowance. If you manage, you choose the contractor, but you also own the schedule and the overrun risk. Either way, get these in writing:
- When and how the allowance is paid (progress draws or a lump sum after completion, often against lien waivers).
- What it can cover: hard costs only, or also design, permits, cabling and signage.
- Whether unused allowance can be applied to rent.
- When rent starts. Tie it to substantial completion and a certificate of occupancy, not a calendar date.
How this affects your lease
A larger allowance usually comes with a higher rate, a longer term, or both. Compare offers on total cost over the term using rent per square foot math, and settle the allowance in the letter of intent, where it is easiest to win. A second-generation space that already fits your use may need little or no allowance. Goff CRE Group, brokered by Nassar Realty, negotiates TI as part of our tenant representation service. Allowance amounts vary by property and market conditions, so ask us for current comps.
