So tell me,
how does it feel when you negotiate $100,000 of landlord-funded tenant
improvements in your lease, you use $75,000 to get the premises ready for your
occupancy, and then find out there isn’t any allowance left a year later to
replace the broken down air conditioning unit on the roof? You just got the shaft, dear tenant…twice!
That is a
common retail refrain, but it happens a lot in the worlds of industrial and
office real estate as well. Most leases –
especially the commonly used “industry standard” ones such as those published
by AIR Commercial Real Estate Association – are skewed heavily in the landlord’s
favor. Language in these leases often
state that the landlord allowance is for construction and improvements to the
premises that relate to the initial space plan and that are performed prior to
the lease commencement date; in other words, “use it” for only this work and
within this time frame “or lose it”.
Most tenants and many inexperienced or oblivious real estate brokers don’t
give this much thought. The tragedy is
that most landlords don’t even pay close attention to this detail; that is,
until the tenant surprises them down the road with a request for funding for
subsequent improvements, and then they turn the tenant down flat.
I’m giving
away a valuable trade secret here, so pay attention! Delete the language that puts time restraints
– direct or implied – on the use of tenant improvement dollars provided by the
landlord. It is amazing how infrequently
I find landlords accepting this change to the lease. The poor soul at the top of this blog could
have been $25,000 to the better if his broker had done this for him!
What I can't tell you is the secret to getting the landlord to allow you to use your tenant improvement allowance for fixtures and telecom systems that are typically disallowed by the standard form leases. For that one, you will have to pick me to represent you.
Aaron Weiner, CCIM, CPM, LEED AP
I really like your blog. I keep a tenant they are so cheep and ugly and they mess my home so much.. After this incidence I know firstly check proper papers of the tenants and then give them a room.
ReplyDeletestudent accommodation in wolverhampton
Hi Aaron, that is definitely the right way to approach it. In my market because lease rates and construction are higher than they have been we don't typically have any TI dollars remaining after a build out. After preliminary bids I find myself always having to go back to the negotiation table to request more TI dollars.
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