Tenant improvements can range from simple aesthetic renovations like painting a wall color to full-blown fit-outs that include HVAC installation and plumbing. Most landlords offer a TI allowance that you can negotiate into your lease terms. These alterations are typically necessary to run your business on commercial leased premises. This money is usually not given up front but amortized through rent payments.
Choosing a General Contractor
The process of building out a new space can be complex. You want a construction team that can zone in on the exact improvements you need and deliver on the budget you set for a custom tenant finish project North Kansas City. You and your contractor must communicate openly about budget expectations throughout the project. It will enable you to prevent unforeseen costs and keep the project on track. If your build-out exceeds the budget, your contractor can work with you to roll the extra costs into future lease payments. The time frame in which TIs are paid out is also something to be negotiated. It is typically determined during lease contract negotiations. Some landlords will allow you to pay a certain percentage of the cost upfront and then reimburse you as stages are completed, or you can choose to have the entire TI allowance paid at lease signing. It will require you to spend more upfront, but it may be easier on your cash flow.
Scope of Work
Tenant improvements are also known as build-outs and are the changes that need to happen to a space before you can move in and start your business. TIs are typically negotiated into your lease in the form of an allowance. Landlords often only agree to so much TI, so knowing your market and dealing well is important. The work letter will outline the amount of money your landlord will allow you to spend on TIs, a timeline for executing the project, and limits on contractors you can use. It will also include a process for reimbursing expenses, including any unforeseen fees. Having a clear scope of work for your build-out is important so that you and your contractor are on the same page. It will ensure clarity and clarity during construction. During the planning phase, your team will identify the improvements that qualify for the TI allowance.
Design
The design phase of your tenant improvement build-out involves creating a plan with budgets and timelines that support the overall vision for the project. This process typically includes the assistance of a space planner, architect and interior designer to help define your requirements and ensure that your TI project is aligned with your company’s goals and fits into your lease structure. During the lease negotiation process, a space plan and general scope of work for your tenant improvements were prepared. The next step is to expand this plan into full construction drawings that include architectural and engineering designs. A finish schedule that lists the precise carpet (brand, color, and style numbers), paint colors, ceiling tile type, and millwork designs will also be included in these blueprints.
In some cases, the landlord may offer a turnkey build-out. It means they will pay for and oversee all required alterations to make the space functional for your business. Other times, your landlord might offer a building standard allowance. It means they will cover the costs of improvements that benefit the entire property while the tenant covers improvements that only serve their space.
Construction
Tenant Improvements (TI) are modifications or improvements made to a leased space customized to meet a tenant’s specific needs. TIs can be costly, and many landlords offer a build-out allowance to help mitigate the costs. During the lease negotiation process, tenants should attempt to negotiate a sufficient build-out allowance to cover most or all of their construction expenses. If the build-out allowance is insufficient to cover the desired project, the tenant should seek a construction loan. If the TI allowance is a cash contribution, it must be capitalized and amortized over the lease term. It will require the tenant to make ratable payments each year. A reputable general contractor should manage the entire build-out, from permit applications to scheduling. The team will complete the design, develop budgets and timelines, oversee construction, and ensure all work is performed according to the governing building codes and regulations. A streamlined and efficient construction phase is critical to the project’s success.
