How Commercial Leasehold Improvements Work

A commercial leasehold improvement refers to modifications or additions to commercial space to make it suitable for your business needs. This can include electrical and lighting modifications, breaking down a wall, adding an additional room, etc.

There are four main ways in which a landlord will pay for commercial leasehold improvements:

1. Tenant Improvement Allowance (TIA) – In most cases, the landlord will give you a certain amount of money known as a tenant improvement allowance to make improvements. The tenant usually oversees the work. The amount you’ll receive varies based on several factors, but an average TIA is about $5 to $15 per square foot.

2. Rent Discounts – The landlord will offer free rent or a discount on rent for a certain number of months. You can use the savings to pay for improvements. The tenant usually oversees the work. Again, the size of the discount varies, but one popular option is one month of free rent for every one year on the lease. For example, if you sign a three year lease, you might get three months of free rent.

3. Building Standard Allowance (aka “Build Out”) – The landlord will offer a package of improvements for every tenant, and you can make selections from the categories offered (e.g. choose one of three types of available flooring). You must pay for improvements not included in the standard build out. The landlord oversees the work.

4. Turn Key – You submit a design plan showing the improvements you want and cost estimates. The landlord pays for and oversees all the work.