What is the Definition of Tenant Improvements & Build out?

tenant improvements definitionTenant improvements, also known as Leasehold improvements are the custom interior finish outs a landlord or tenant makes to a commercial rental space (office, retail, or warehouse space). The amount build out to be completed or the tenant allowance needed to do the tenant improvements is typically negotiated up front between the landlord and tenant and is part of the overall commercial lease agreement.

Before signing lease it’s important that you understand what the tenant improvements will cost because landlord will agree to only cover the cost of $xxx amount. If you are a new business you want to keep your costs low so you may want to find a space that does not need much interior finish out work. Depending on the spaces previous use the space could need A LOT of work or not much work at all to suit your needs. They key is however to get a preliminary  construction bid before signing a lease so you have an idea of what the finish out cost will be AND how much of the tenant improvements the landlord is willing to pay for.

Also, as you plan your tenant improvements it’s important that you consider the company’s culture and how it will use the space. According to furniture company, Homes Direct 365 first impressions are everything. For both your current and future employees and clients. Branding in your entry ways, reception areas, and conference rooms are important and the use of furniture pieces, accent colors and lighting elements will help you emphasize your brand.

How Much Will Tenant Improvements Cost?

The cost of tenant improvements and the time needed to do them depends on the existing condition of the space. If it’s in shell condition (meaning it’s a brand new space that has never been built out) then the tenant improvements will be more expensive and take at least 3-4 months depending on the city you are in. If it’s 2nd generation space (meaning the space has been finished out and occupied before) it will typically cost less to do the tenant finishes and won’t take as long to do them. Now if you are completely changing everything in a 2nd generation space then then obviously the cost and time will increase.

definition of tenant improvements & build outWhat May be Included in Interior Commercial Tenant Finish Outs?

  • Demo or remove existing walls
  • Build or construct new sheet rock walls
  • New flooring such as carpet, laminate, or hardwood floors
  • New paint
  • New blinds
  • Electrial
  • Plumbing
  • HVAC (heating ventilation air conditioning)
  • Disability changes or upgrades
  • New dropped ceiling or exposed ceiling
  • Windows next to office doors called side lights
  • Anything else previously negotiated with the landlord

What is Not Typically included in Tenant Build Outs?

  • Proprietary trade fixtures
  • Office Furniture
  • Above standard upgrades
  • Building exterior signage
  • Etc
  • Data and phone cabling

Tenant improvements are required in most commercial spaces as it’s very rare that you find a space that meets your needs exactly. Some sort of interior build out will typically be needed. It’s important that you negotiate a favorable tenant improvement allowance with the landlord so you can minimize your out of pocket costs to cover the rest. Consider hiring a good architect that can help you determine what tenant finish outs you want to do. 

If you have any questions about tenant interior build outs don’t hesitate to give us a call. 

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