What is a Tenant Improvement Allowance?
A tenant improvement allowance (TIA) is money a landlord gives you to help cover the cost of fixing up the space you’re leasing. Think flooring, walls, paint, lighting, that kind of stuff. You’re not getting a blank check, and you’re not walking away with cash in your pocket. It’s usually either reimbursed or built into the lease economics, so one way or another, you’re paying for it. The only question is how and when.
Some folks call it “TI funds,” “build-out allowance,” “upfit money,” or just “tenant allowance.” It’s all the same idea: the landlord chips in for improvements, either to get the deal done or to help you customize the space for your business. There are some nuances, naturally. For example, in single-tenant triple net lease (SNTL) agreements, tenants are typically responsible for property expenses, but landlords may still offer such allowances to attract and retain tenants.
Usually, the allowance is offered as a set amount per square foot (more on that later). For example, if the landlord offers $30 per square foot and you’re leasing 2,000 square feet, that’s $60,000 to work with. If your build-out goes over that, you cover the difference. If it comes in under, you don’t usually pocket the rest, but we’ll talk about that later too.
A TIA is a negotiation tool, not a gift. It’s part of the deal. If you don’t know what’s fair, or how a TI allowance is structured, you’ll likely end up leaving money on the table or thinking you got a win when really, it was already baked into the rent.
How Does a Tenant Improvement Allowance Work?
Here’s the short version: the landlord offers you a set amount to help cover the cost of making the space usable for your business. You agree on that number during lease negotiations, and the final amount ends up in your lease as part of the terms.
Now, that money can be handled in a couple different ways:
Turnkey Buildout
The landlord handles the construction and delivers the space ready to go. You just show up and start moving in.
Reimbursement
You manage the buildout, pay the contractors, and the landlord reimburses you after you show receipts or invoices.
Most deals these days lean toward reimbursement. But either way, the TIA isn’t just handed over. You’ll likely need to submit plans, get landlord approval on contractors, and document everything. And don’t assume you’ll get reimbursed right away. It can take 30 to 90 days, sometimes longer. If you’re counting on that money to float your buildout, think twice.
Also, keep in mind: the TIA usually only covers permanent improvements. Paint, drywall, lighting, sure thing. Furniture, fixtures, or equipment, probably not. That includes things like espresso machines, salon chairs, or kitchen gear. Always ask what’s covered.
And if you don’t use the full allowance? In most leases, that money just disappears. You don’t get to pocket it or roll it into rent unless it’s specifically negotiated.
How to Calculate a TIA (With Calculator)
Most tenant improvement allowances are quoted as a dollar amount per rentable square foot. So the math is simple on paper:
TIA = Allowance per square foot × Rentable square footage
Let’s say you’re leasing a 2,000 square foot space and the landlord offers $25 per square foot in TI funds: $25 × 2,000 = $50,000
That means you’d have $50,000 available for improvements (again, usually in the form of a reimbursement after buildout). If your renovation costs hit $60,000, you’d cover the $10,000 difference out of pocket.
Also remember, the TIA offer isn’t always based on what the space needs. Sometimes it’s a flat number based on the market, or what the landlord offered the last tenant. If you need more, you’ll either negotiate for it, or build smarter.
This tenant improvement allowance calculator will help you figure out what your allowance adds up to in dollars, and how far it’ll actually get you based on your plans.
What’s in the TIA Lease Clause?
The tenant improvement allowance clause in your lease is where all the fine print lives. And like most fine print, it’s easy to miss the stuff that matters until it’s too late.
At a minimum, that clause should cover:
- The amount (usually per square foot)
- What qualifies as reimbursable improvements
- How the money is disbursed (upfront, reimbursement, or applied as rent credit)
- Deadlines for completing the work
- Documentation requirements (receipts, contractor approvals, inspections)
One thing to watch out for is vague language. If it just says “Landlord agrees to provide a reasonable allowance for improvements,” that’s a red flag. Reasonable to who? Get numbers in writing and a clear explanation of the process.
Also, check for any use-it-or-lose-it deadlines. Some landlords set a strict timeframe. If you don’t complete the improvements and submit paperwork by then, you lose access to the allowance.
And if the lease says improvements must be “approved by landlord,” ask what that approval process looks like. You don’t want to get stuck in limbo while waiting for signoff on basic things like flooring or lighting.
A solid TIA clause is detailed but clear. If it’s not, ask questions or have a lease attorney look it over. The last place you want to find surprises is in legal language tied to construction costs.
How to Negotiate a Better TIA
Tenant improvement money is negotiable. Just because the landlord offers $15 per square foot doesn’t mean that’s all you can get. Think of it like any other part of the lease: if you have leverage, use it.
Here’s what I’ve seen that actually moves the needle:
- Lease term: The longer your lease, the more likely a landlord is to offer a higher allowance. A five or ten-year lease gives them more time to recover the cost.
- Your financials: If your business has strong credit, or if you’re a known brand, landlords are more likely to offer better terms up front.
- The condition of the space: If you’re taking a shell or first-generation space, you should be asking for a higher TIA. Second-generation spaces may need less work, but that doesn’t mean you can’t ask for help.
- Market conditions: In a soft market with lots of vacant space, landlords get flexible. If you’re in a hot area with no inventory, they don’t have to budge.
I would suggest asking for the moon early in the negotiation, then trade down. For example, ask for a higher allowance, and if they say no, negotiate for free rent instead. Or ask to apply any unused TIA toward rent. The more options you have, the better your outcome will be.
And don’t just accept a number because it sounds generous. If the space needs $40 per foot and they offer $20, that’s not a deal, that’s a gap YOU will have to fill.
Typical TI Allowance by Property Type
There’s no single “normal” tenant improvement allowance. It varies by location, property type, and lease terms. That said, here’s a ballpark breakdown to give you an idea of what tenants often see:
Retail Centers
Office Building
Industrial
- Office space: $15 to $50 per square foot. Class A office space in new buildings tends to land on the higher end, especially if the space is unfinished.
- Retail space: $10 to $40 per square foot. Buildout costs here can vary wildly depending on whether you’re opening a boutique, restaurant, or service business.
- Industrial/flex space: Usually lower, around $5 to $20 per square foot. These spaces don’t require as much polish, and landlords rarely give high TI packages.
First-generation spaces (meaning nobody’s leased it before) tend to get higher allowances. Second-gen spaces, where someone else already did a buildout, may come with a lower TIA, or none at all.
This is also why it helps to get quotes from contractors before you agree to anything. If you know the buildout will cost $70,000 and the landlord is offering $30,000, you need to account for that shortfall before signing.
Tax and Accounting Considerations
Tenant improvement allowances can get tricky when tax season rolls around. The IRS doesn’t treat all TIAs the same, and how the money is handled depends on how the lease is structured.
If the landlord gives you a TI allowance and you control the buildout, that allowance might be considered income. In that case, you could be responsible for paying taxes on it, even though you didn’t technically pocket the money. The offset is that you’d usually capitalize the improvements and depreciate them over time.
If the landlord does the work and you just move in, then there’s usually no tax impact on your end. But you also don’t own the improvements. That can affect what you can write off if you ever leave or sublease the space. On the landlord’s side, most of the time they’ll depreciate the cost of the improvements over a 15- or 39-year schedule, depending on how the lease is set up.
None of this is meant as tax advice, obviously. But you should go into the lease knowing that TIAs can have tax and accounting consequences. Some of which don’t affect everyone equally. Talk to a CPA before you sign if the allowance is substantial.
Final Takeaways
Don’t assume your tenant improvement allowance is free money, it definitely isn’t. But also don’t assume the landlord’s offer is the best you can do. Know what’s covered, how much you’re getting, and what happens if your buildout goes over budget. Get it in writing, read the clause carefully, and ask questions until it makes sense.
If you want to get a quick sense of how much your allowance is actually worth, you can use the TIA calculator above. And if you’re still unsure whether the terms in your lease are fair, this is one of those moments when it really does make sense to talk to a lease attorney. A 30-minute review can save you tens of thousands.
Want help finding one? We can connect you.
