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A commercial tenant's proposed TI allowance may not be enough

Finding rental space in a new building may seem like a stroke of luck to some Orange County small business owners. New buildings often come with "bells and whistles" not yet offered in older buildings. This may cause a prospective commercial tenant to think that it will not be necessary to have a significant tenant improvement allowance from the property owner.

As it turns out, that may not be the case. What may seem like a generous allowance could actually not be nearly enough. Research indicates that it costs approximately $14 more per square foot to build out a new space to a tenant's needs and specifications than it would to renovate an older space.

Having the opportunity to make a new space their own may attract prospective tenants, but they need to be cautious. Part of the build-out may include putting in certain infrastructure that older buildings already have. The building's owner ought to bear those types of costs, but would not hesitate to pass them on the first tenant in a new space. However, this does not mean it is not possible to reach an agreement that does not end up making the cost too high for the tenant.

It will more than likely require a good amount of research to determine what is needed for the build-out and what it will cost, which is information crucial to a potential commercial tenant. If an Orange County small business owner discovers that the cost will include putting in certain aspects of the building's infrastructure, the cost of doing so could be substantial. The beauty of commercial leases is that they are negotiable, including the tenant improvement allowance.

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