Negotiating tenant allowance

a year ago

Before moving into a new office building, you’ll have the opportunity to make changes to your building. The fitout, also called tenant improvement is a crucial part of arranging your lease, and should be at the forefront of conversation between you and your new landlord. Negotiating your improvement allowance is a critical part of your lease agreement. You need to be upfront and ask for what you want at the beginning of negotiations.

Before you can start talking numbers, you need to find out from your landlord whether you’re doing a turn-key fitout or making improvements to a second generation space. A turn-key fitout is typically managed by the landlord, and tenants simply turn the key on move-in day to a fully outfitted office space. If you’re renting an office space that is currently shell-space, a turnkey fitout may be right for you. However if you’re moving into a second generation space, fewer alterations may be necessary for your office to be move-in ready.

Turnkey budgets have more flexibility, but you may have to pay out of pocket for certain amenities. Landlords don’t want to spend more than what they have to, even if certain amenities or design elements are beneficial to your business operations. Most turn-key fitouts are completely managed and paid for by the landlord, which gives them all the control.

If you negotiate a fixed amount for your allowance, you may gain more control over the fitout process, and can budget your out-of-pocket expenses accordingly. With a fixed allowance you can manage the project yourself rather than trusting the landlord to make your vision come true. A landlord may actually give a larger allowance for fixed amounts than they will turn-key projects. It all depends on the state of the space before your lease and what alterations are required for your business.

You need to have a floor plan and estimates ready before talking to the landlord, or you may receive a lower per-square-foot budget than you need. Showing estimates from a contractor is necessary. You also want to have strong justifications for the contractors, resources and materials you choose to use in your fitout. The landlord will scrutinize every decision you make to lower their costs so be prepared to defend what you want.

Other factors the landlord will consider is the market value (based on the demand for property), the value of you as the client, and how much the improvements will add to the value of the property long-term. The landlord will arguably have more experience in the fitout process and get better deals, but they may sacrifice quality for cost at your expense. 

Get in touch

When you go into negotiations with your landlord, be firm and be prepared to ask for the accomodations you need to effectively run your business. When you’re ready to start looking for estimates and designs, contact us.

Last updated on Saturday, August 8th 2020

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