Tenant Improvement Allowance

When negotiating a lease, a tenant will expect an owner to agree to provide a tenant improvement allowance (TIA) to help pay the cost of altering and improving the space.


from Commercial Tenant's Lease Insider, December 2005


"The tenant will want to use the TIA to pay hard costs (the costs of labor and materials) and soft costs (such as architectural fees and engineering fees).


To avoid disputes with the owner over which soft costs the TIA will cover, list them in the lease. A broad list of soft costs includes:


* Architectural fees.


* Engineering fees.


* Legal fees.


* Consultant's fees.


* Building permit and filing fees.


* Interest/financing costs.


* Design fees.


* Furniture and movable office equipment costs.


* Signage costs; and


* Moving costs.


Expect a savvy owner to limit the amount of soft costs that the TIA will cover, for example:


(a) Cap on TIA covering soft costs.


(b) Exclude controversial costs.


(c) Line item budget.


Example: Some leases bar the TIA from being used for telecommunications equipment. That can be a problem because telecommunications conduit and switching equipment can be a big part of the construction costs. The tenant should make sure that hard construction costs include telecommunications conduit and switching equipment."

Messages in this topic (1)
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2a. 2006 estimated expenses
Posted by: "Larry Mayerhofer" lmayerhofer@sbcglobal.net lawrence_mayerhofer
Date: Wed Jun 21, 2006 11:29 am (PDT)
Often when a building changes ownership, the assessed valuation will be adjusted (with the current hot market for office buildings, it typically increases). The assessor has all of the sale data, and if the sales price was $8.1 million, it is likely that the valuation will be increased as of the sale date. Unfortunately it may take months or years for the assessment to be finalized (especially if the new owner appeals). Since it is almost impossible for the owner to recover retroactive tax increases years later, when many of the tenants have vacated, it is in their best interest to try to bill them upfront.
Now would be a good time to establish a good relationship with the new owner. I recommend that a group of tenants meet with the owner to discuss the reason for the higher tax estimate. If the owner was assured that they could eventually recover the retroactive taxes they might reduce the 2006 prebillings. It could take a letter agreement or lease amendment to memorialize the arrangement.
On the other hand, if the owner doesn't expect the taxes to rise, a group of tenants could put pressure on them to reduce the prebillings to a more realistic level.
by:Larry Mayerhofer; for more information see:

www.houstonrealtyadvisors.net