Do I Want a Tenant Improvement Allowance or a Cash Allowance?

Your business’ would-be new space will need some work to get it to where you want it to be, and your new would-be building manager says they’re willing to work with you to make that happen.

So, should you ask for a tenant improvement allowance or a cash allowance to improve the space?

The simple answer is always lead with asking for the cash allowance first, and then accept the best possible tenant improvement allowance terms that you can negotiate into your commercial lease.

In most cases, you’re going to be very lucky to get the cash allowance option. Here’s why.

A Tenant Improvement Allowance Favors the Building Owner/ Manager

First and foremost, building owners and managers don’t love the no-questions-asked nature of a cash allowance. These funds are to be allocated to improving your workspace, but there is nothing stopping you from using them to pay for a marketing campaign or to take your staff out for lunch.

The tenant improvement allowance also gives building managers/ owners more control when it comes to the terms of your usage.

If you want to read specifics on how landlords can save a lot of money while negotiating a tenant improvement allowance in their favor, we invite you to click that link.

Beware the Traps of a Tenant Improvement Allowance

The first thing you need to be aware of is the nebulous use of the word “turnkey.” It sounds promising for you, but it can mean literally anything.

Many landlords will discuss giving you a turnkey allowance to work on your space. But, you may eventually learn that they are only offering about half of what is required, forcing you to pay out-of-pocket for the other half. You may not get the actual terms of what they’re offering you until you’re late in negotiations. They know you’re eager to move in and you:

  • May now be emotionally committed to the space
  • May have already started to make arrangements to move into the space
  • Would rather not start the process of looking for a whole new space

You may not love the idea of footing half of the bill, but you may be in love with the space, so you begrudgingly agree to hold onto it.

Progress Payments

It’s also in your best interest to negotiate for progress payments, as opposed to being reimbursed for an entire improvement project when the dust settles. Having to pay a large amount of money to improve the site can really lock up your cash flow and create an invoicing bottleneck for months at a time. Rather than waiting for a big payout, negotiate for progress payments every few months.

Just because your landlord says they’re willing to help you make this space everything you want doesn’t mean they will give you everything you need. If promises are made, ask for specifics so that there are no “surprises” late in the negotiating process when you’re less inclined to pull out and start over.

Always try to get the cash allowance whenever possible, but be prepared to negotiate a tenant improvement allowance instead. When that process begins, we also encourage you to work with a commercial lease expert to examine the specifics of your lease. This will help you avoid any of the traps listed above, or countless others.