construction allowance

construction allowance

As a leasing incentive, an amount budgeted for a tenant to spend on improvements to the space leased.When one is engaged in negotiations, care should be taken to define the tenant's obligations and the landlord's obligations with reference to the construction allowance.Also called tenant improvements allowance or TI for short.

Example: If the lease gives the tenant responsibility for all improvements “below ceiling,” then the considerable cost of adding or replacing ceiling tiles and light fixtures must be borne by the landlord and will not be deducted from the construction allowance. One should also negoti- ate the disposition of any unused construction allowance dollars and provide for their use as a credit against future rent or for them to be retained by the landlord in the account of the tenant and used at some point in the future for rehab expenses such as replacing worn carpet or repainting internal corridors.