Just how do landlords and tenants ever agree on tenant finish out? Who pays for what? Can the tenant do anything they want in the space? What happens if a project doesn’t finish on time? Listen to today’s podcast to hear Jan and Bob discuss how to protect yourself in a shoot-out at the TI corral with your landlord.
First, what does the term TI stand for? TI or TIs stands for tenant improvements. It just means the improvements needed in the space to make it suitable for a tenant to conduct its business. Occasionally, small tenants, or those in a rush, will lease space that’s already finished out and ready to occupy. These suites are called spec suites and landlords have been building these in office buildings for years. In fact, a few landlords have built new buildings and finished out the entire building with spec suites from the beginning. They have been very successful and its really fills a need in the market. However, this market segment makes up less than 5% of the total office market. So, what do the other 95% of tenants do? They negotiate with their landlords to have space finished-out specifically for their needs. What does that look like in practice?
- Needs assessment – space program – have your broker help you break down exactly what will be needed in your space
- Timing available – when can the project be done and will it be in time to fulfill the tenants’ needs
- Property tour – actually tour some spaces and see what’s on the market that might be a fit
- Space planning – architect – have specific plans drawn to match your space and needs
- Negotiate how it will work and who pays what – turnkey versus allowance
There are many selections to be made, including: countertops, paint, carpeting, flooring, lighting, etc. That’s why there is an architect to help navigate tenants through this maze. The architect who created the space plan can also help pick finishes and make sure they are coordinated. Some landlords will do this in advance and have finish boards showing combinations in various color schemes to make it easier. Some tenants will hire their own interior designers when they have very specific needs.
Tenant improvements is for more than just new buildings (or has they are called first gen), correct? Definitely. Even if the space has been built out previously (or second gen) it will need to be configured for the new tenants’ needs and desires. Yes, however, it usually doesn’t take as much work as first gen space does, but it can, depending on the retrofit.
The real difference between turnkey versus allowance is based on who manages the money and timing. Turnkey is where the landlord handles the entire process; allowance is where the tenant manages the build out with an allowance from the landlord and if necessary, additional monies of their own.
The most important takeaway is to be as specific as you can be with every detail of the finish out and have all parties acknowledge it.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate (also known as a tenant rep) with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.