TENANT IMPROVEMENTS - Understanding Commercial Leases - Part 9

This is part 9 of a multi-part series on Understanding Commercial Leases

TENANT IMPROVEMENTS

PURPOSE - It is a payment mechanism for improvements the Tenant requires to the Premises

SOME COMMON MECHANISMS

• Tenant takes premises in AS-IS condition (no improvements by Landlord required)
• Landlord makes all improvements, at Landlord’s expense, per set of plans negotiated with the Tenant.
• Tenant makes all improvements at Tenant’s expense per set of plans negotiated with the Landlord.
• Tenant makes all improvements per set of plans negotiated with Landlord and Tenant is paid an “allowance” (usually, but not always) based upon square footage) to reimburse Tenant for some or all of costs of improvements.
• Landlord makes limited improvements, at Landlord’s expense, and Tenant makes all
  other improvements at Tenant’s expense.

LANDLORD'S INTEREST

• Control quality of construction
• Pay as little as possible and get Tenant to make as many improvements as possible.
• Make sure little money is spent on “risky” tenants who might not last.
• Make sure space is improved in such a manner that allows for flexibility of possible future
  uses.
• Make sure all contractors and subcontractors get paid, so that no liens get placed on
  property.

TENANT'S INTEREST

• Pay as little as possible, as they are making improvements to a space that belongs to
  Landlord.
• Get Landlord to make the improvements, unless improvements are of a “specialty”
  nature that requires expertise of Tenant.
• Negotiate the largest “allowance” possible.
  
• Make sure Landlord has the money to pay the allowance once the work has been completed and that the provisions for being paid the allowance and reasonable.