Getting a Helping Hand: Tenant Improvement Allowance

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Getting a Helping Hand: Tenant Improvement Allowance

Opening your dental practice will involve a substantial investment of your time and money, particularly in the design and construction of many specialized improvements that you’ll need to support your dental equipment. While you may be fortunate enough to find office space that is appropriately plumbed for dental use, typically office space is delivered ready for use as an accounting or law office, or maybe even delivered in “shell condition” without even the basics needed for routine administrative office space. Hopefully, your landlord will agree to lend a helping hand with the costs of getting your space ready for business by offering to provide a “tenant improvement allowance.”

A tenant improvement allowance is cash that your landlord will provide to go towards the construction costs for your many improvements to the space. It may take the form of a certain amount per square foot of leased space or it may be a fixed amount for your construction project. The amount of the tenant improvement allowance and the timing of this payment are important points of negotiation as you work through the details of your lease arrangement. Often landlords prefer to pay the tenant improvement allowance at the end of your construction project, after all of your improvements have been completed. This may mean that you have to pay the contractors out of your own pocket during the project (or from your loan proceeds), leaving you waiting for the landlord’s funds (your tenant improvement allowance) as reimbursement. With more costly and longer projects and where the tenant improvement allowance covers a significant portion of your total construction costs, asking your landlord to pay the tenant improvement allowance in installments (ex., pay half of the allowance after half of the construction is complete and the balance upon final completion of the project) may be a better strategy. This can ease your burden of paying the contractors, and can save you a lot of time, money, and risk if otherwise you’d have had to obtain additional financing to pay them instead.

Receiving a tenant improvement allowance from your landlord shows that your landlord means business, is willing to contribute to your investment in your space and appreciates your own significant investments into their property for the sake of your dental practice. Negotiating the finer points of your tenant improvement allowance will be an important part of your lease negotiations and your real estate broker and legal counsel can assist. Make sure you get the details involving any tenant improvement allowance figured out during the initial negotiation phases and you’ll be able to sign your lease with confidence that you and your landlord are on the same page.

Categories: Blogs, Letters of Intent, Office Leases, Real Estate