The Residential New Build Digital Ebook

The Tenant Improvement Allowance Math — Why the Number in the Lease Is the Wrong Number to Budget Against

A tenant improvement allowance — a TIA — is the dollar amount the landlord agrees to put toward your build-out, usually quoted as a per-square-foot number (“$40 per square foot”) or a lump sum (“$80,000 toward TI”). Tenants read this number as their budget. It isn’t.

The TIA almost never pays for everything. The $40-per-square-foot number is the landlord’s contribution to a defined scope of work. That scope is typically narrower than what your build-out actually needs. Items often excluded: architect fees, permit fees, ADA upgrades that go beyond the landlord’s base-building standard, low-voltage cabling, signage, furniture, fixtures, and equipment. Read the work letter (Section 2) before you treat the TIA as the budget.

The TIA is rarely paid up front. Most landlords reimburse after-the-fact, on a reimbursement schedule tied to invoices and lien waivers. Some pay in installments at milestones. A few pay as a lump sum on permit issuance. The cash flow story matters: if you’re funding $80,000 of TI work and the landlord pays $60,000 of it 90 days after the invoice, you’re carrying that gap for three months at your cost of capital.

Unspent TIA doesn’t come back to you in cash. If your build-out comes in under the TIA number, the unused portion typically goes back to the landlord — reduced rent, free rent month, or landlord-funded upgrades. Some leases offer a portion as a tenant credit, but most don’t. Build to the scope, not to the dollar figure.

The TIA doesn’t cover the space between “delivered” and “ready to open.” Insurance, utilities, marketing, staff training, opening inventory, security deposits, dumpster rentals, temporary signage — the build-out budget isn’t the open-the-door budget. Plan both.

The Lease vs. Landlord “Work Letter” Split — Who Pays for What

A commercial lease comes in two pieces that are easy to confuse. The lease is the legal agreement — rent, term, permitted use, renewal options, default. The work letter is the construction piggyback — what the landlord will build, what condition the space will be in at delivery, and what the TIA covers. Most of the surprises in a build-out live in the work letter, and most tenants don’t read it line by line.

Base building vs. tenant improvement. The landlord owns the base building — the structure, the envelope, the roof, the common areas, the building systems up to a defined point (the “demising wall” or the “building standard” HVAC loop, depending on the lease). Everything inside your leased line, and everything specific to your use, is tenant improvement. The split is a fact of physics — the landlord isn’t going to pay for your walk-in cooler or your reception desk — but the line is drawn differently in every lease.

What the landlord typically pays for. The base-building delivery condition: a demised space with HVAC stubbed to the space, a panel with sufficient amperage, a fire-sprinkler loop roughed in, a slab at proper elevation, restroom core(s) on the corridor side. Often, code-required items triggered by your use — a grease interceptor for a restaurant, an accessible path from the parking lot, a fire-rating upgrade on an adjacent wall.

What the tenant typically pays for. Everything inside the leased line that’s specific to the use: partitions, doors, finishes, lighting fixtures beyond the building standard, plumbing beyond the core, special electrical, low-voltage cabling, signage, kitchen equipment, millwork, fixtures, furniture. Permit fees. Architect fees. Anything that goes above the landlord’s standard scope.

The work letter scope language is where the money is. A phrase like “Building Standard HVAC distribution within the demised premises” tells you the landlord’s loop will reach your space but the branch ductwork inside is on you. “Electrical service to the demised premises” means a panel, not the circuits. “Restroom core on the corridor side, finished to building standard” means the corridor restroom, not your private restroom. Read those words. They are the contract.

Permits and plan review. The lease usually puts the tenant’s permit in the tenant’s name, even when the landlord is paying for the underlying improvement. That means the tenant is the party on the hook for plan-review comments, code compliance, and inspection sign-off. The TIA typically reimburses the permit fees — but the responsibility for getting the permits doesn’t transfer to the landlord.

“As-Is” Shell Condition — What That Phrase Really Means and What It Hides

The phrase “delivered in as-is condition” shows up in commercial leases more often than any other clause tenants regret. It sounds like “you take the space as we leave it” — which sounds reasonable. It actually means “the landlord has no obligation to fix anything, and you take responsibility for whatever condition we hand you.” Those are very different sentences.

The previous tenant’s build-out is ghosts. A 90s-era law office’s partitions, wiring, plumbing stubs, and floor boxes are still in the walls when the next tenant walks in. The carpet has been pulled, but the concrete patch where the receptionist’s desk used to be is still a 6-inch depression. The HVAC branch lines run to where offices used to be — long past the new layout’s walls. “As-is” means you’re paying to demolish the previous use and start over.

Slab elevation is rarely level. A slab poured in the 1970s, patched twice, and now hosting a restaurant build-out is rarely flat. A 6mm tolerance over 30 feet is the spec for new slabs; 30-year-old slabs can violate that by a factor of ten. Floor leveling compound before tile, accessible threshold heights along the ADA path, slope-to-drain under a bar or service counter — slab elevation runs through every finish decision downstream.

MEP stubs are rarely where the new layout needs them. The cold-water line for the previous tenant’s break room lands 12 feet from where your espresso machine needs to go. The gas line stops at the column, not at the kitchen. The electrical panel is sized for offices, not for the 200-amp draw of a small commercial kitchen. Running new branch lines inside a leased shell is a significant fraction of a tenant build-out cost — and the “as-is” condition is exactly why.

The roof is the landlord’s; the rooftop unit is often yours. Roof leaks are typically a landlord responsibility — but the rooftop HVAC unit, the vents, the condensate piping, and the curbs they sit on are often a tenant item. If your kitchen exhaust fan needs a new curb, that’s a tenant cost. If your AC unit needs to be replaced, that’s typically a tenant cost — unless the lease language specifically puts it on the landlord.

ADA, Egress & Occupancy Load — The Inspection Order That Gets You Open on Time

Three codes govern a commercial build-out together: the International Building Code (IBC), the International Fire Code (IFC), and the 2010 ADA Standards. They overlap. A single misstep in any one of them blocks the certificate of occupancy — the document that lets you open the door to the public.

Occupancy load drives fixture count, exit count, and aisle width. Before a single partition is drawn, the IBC requires an occupant load calculation based on the use and the square footage. A 1,500-square-foot restaurant with full dining needs a higher calculated load than the same square footage as office use — which means more restroom fixtures, more exit width, and tighter aisle-clearance rules. Tenants who bring a floor plan from a previous space (different use, different load) get caught at plan review, not at opening.

ADA path runs end to end. The accessible path goes from the parking space (accessible, signed, slope under 1:48) through the building entrance (door hardware, threshold height, clear width) to the service counter (height, knee clearance, integrated accessible section) and to the restroom (clear floor space, grab bars, lavatory clearance, mirror height). Each link has to pass; one broken link breaks the whole path. Tenants frequently design the front-of-house beautifully and forget the rear corridor or the back door.

The inspection order has a sequence. Plan review comes first — a single submission to the building department that bundles architecture, structural, mechanical, electrical, plumbing, fire, and ADA. Then building permits are issued. Then construction starts. Inspections happen in order: footing/foundations, framing rough-in, MEP rough-in, insulation, drywall, fire-sprinkler, final. The certificate of occupancy comes after final — not before. Trying to occupy before CO is a violation and a stop-work notice.

ADA is read at every inspection, not just the final. Accessible turning clearances, door widths, signage, counter heights, restroom clearances — every one of those is measured against the approved drawings. A 36-inch door that nets 30 inches of clear opening fails. A counter installed 42 inches AFF without an accessible section fails. These aren’t interpretation calls. They’re plan-review and inspection items, period.

MEP Rough-In Sequencing in a Leased Shell — The Order You Don’t See on the Floor Plan

Mechanical, electrical, plumbing, and fire protection (MEP) rough-in is the longest lead-time path on a commercial build-out. The walls go up around it, not over it. The order matters because each trade blocks the next — and the wrong sequence means demolition later.

Plumbing roughs in first, at the slab. The slab is opened. Drain lines, water lines, vent stacks, and gas lines are laid in their final runs — not the “close enough” runs that save a day on the clock and cost a week on the punch list. Slab openings are concrete-poured back; you don’t move plumbing rough-in twice.

Sprinkler rough-in follows. Once plumbing is in and inspected, the fire-sprinkler loop is laid in the ceiling cavity. The branch lines run to coverage areas based on hazard classification — light hazard for offices, ordinary hazard for retail, extra hazard for some kitchen lines. Moving a sprinkler head after rough-in means re-pressurizing and re-testing the loop.

HVAC ductwork goes in next. Branch ducts and diffusers are hung from the structure above the ceiling, sized to the heating/cooling load of each zone. The ductwork path has to clear the sprinkler heads, the lighting layout, the electrical conduits, and the plumbing vents. Coordination drawings — the “MEP coordination” set — is what prevents ductwork from colliding with sprinklers in the field.

Electrical follows ductwork. Conduit, panels, branch circuits, low-voltage cabling, and fire-alarm wiring route through the ceiling cavity and the walls. Each circuit terminates at a rough-in box in the location called out on the drawings. Moving an outlet 6 inches during construction can mean drilling through a sprinkler line, an HVAC duct, or a structural beam. The 6 inches costs a day.

Framing closes the walls. Once MEP rough-in is inspected and signed off, partitions and ceilings go up around it. The walls conceal what was roughed in. From this point on, moving anything means opening the wall and re-inspecting.

Change-Order Traps on TI Work — The Five That Eat Your Contingency

Tenant build-outs run on tight schedules because every day the space sits empty costs rent. The pressure to design fast, permit fast, and start construction fast is real — and it’s exactly the pressure that produces change orders once construction starts. Here are the five that eat most contingencies.

1. Signage, added late. Most tenants design the storefront and signage after the build-out is permitted. Code review for signage is a separate submittal, with separate timelines — and the sign permit is sometimes held until the building permit has progressed. Add signage to the permit set the first time, or budget a separate submittal cycle.

2. Kitchen equipment changes. The selected kitchen equipment has specific utility requirements. The original equipment spec didn’t match what the chef actually ordered — different gas pressure, different amperage, different ventilation. The MEP rough-in was sized to the original spec. Change the equipment after rough-in and you change the rough-in.

3. Specialty finishes added to the schedule. A tile that wasn’t in the original spec, a custom millwork piece that arrived late and doesn’t fit, a paint color that changed twice — specialty finishes are a frequent change-order source because they’re the easiest thing to add in a hurry. Add them to the original spec or accept the change-order cost.

4. Technology infrastructure. Audio-visual, point-of-sale, security cameras, access control, low-voltage cabling — the AV/IT scope is real and it’s often under-scoped at the start. The low-voltage sub gets pulled in late. The cabling runs aren’t in the original framing. The AV closet wasn’t sized for the rack.

5. Field conditions versus the as-built. The landlord’s existing conditions report says one thing. The slab, the framing, the ductwork, the panel — they sometimes say another. Hidden conditions on an older building frequently surface during demolition. A contingency of 10–15 percent on TI work is realistic; less than that gets eaten by the first surprise.