What Makes Tenant Improvement Work Different
A tenant improvement, or TI, project builds out leased space to suit a specific tenant's use, working within an existing shell rather than starting from raw land. This involves navigating landlord design criteria, existing building systems that may not match current code, and often a shared building where work must not disrupt other tenants. A contractor experienced in ground-up construction is not automatically well suited to this kind of work, since the constraints and approval chain differ significantly.
How the Tenant Improvement Allowance Works
Many commercial leases include a tenant improvement allowance, a dollar amount the landlord contributes toward build-out costs, often expressed per square foot. If construction costs exceed the allowance, the tenant covers the difference. An experienced TI contractor helps the tenant understand early whether the planned scope fits within the allowance, since discovering a gap after design is complete can force late-stage value engineering or an unplanned request for additional landlord funding.
What to Look for in a Tenant Improvement Contractor
- Direct experience with the specific building type and landlord, if available, since some landlords have established relationships or approved contractor lists
- A track record of projects completed within active or occupied buildings without major tenant disruption
- Familiarity with the local jurisdiction's permitting process for tenant improvements specifically, which can differ from new construction permitting
- A clear process for tracking the allowance against actual costs throughout the project
How Landlord Approval Affects the Timeline
Most leases require landlord approval of construction drawings before work begins, and some require approval of the contractor as well. This approval step can add time to the schedule if not planned for, particularly if the landlord's design criteria were not reviewed before the contractor priced the project. Confirming landlord requirements early, ideally before the lease is signed, helps avoid a redesign after the tenant has already committed to a timeline.
Common Issues in Tenant Improvement Projects
- Existing building systems, such as electrical capacity or HVAC zoning, that were not designed for the new tenant's intended use
- Code upgrades triggered by the scope of work that were not anticipated in the original allowance budget
- Landlord design criteria that conflict with the tenant's preferred finishes or layout
- Shared building access and work hour restrictions that limit construction schedule flexibility
Involving a Contractor Before the Lease Is Signed
A tenant that brings a TI contractor in only after signing the lease has already lost the chance to negotiate lease terms informed by real construction cost information. A contractor who reviews the space during lease negotiation can flag issues, such as insufficient electrical capacity or a layout that will require expensive structural changes, while the tenant still has negotiating room to push for a larger allowance or a different space. Once the lease is signed, that negotiating room is largely gone, and any gap between the allowance and actual cost becomes the tenant's problem to solve alone.
Questions to Ask Before Hiring a TI Contractor
- Has the contractor worked in this specific building or with this landlord before?
- How does the contractor track the allowance against actual project costs?
- What is the contractor's experience with code upgrades triggered by change of use or occupancy?
- How does the contractor handle work in occupied or shared buildings, including noise and access restrictions?
- Can the contractor review the space and provide input before the lease is finalized?
Questions
What is a tenant improvement allowance?
It is a dollar amount, often expressed per square foot, that a landlord contributes toward a tenant's build-out costs as part of the lease agreement.
Does a tenant improvement project require landlord approval of the contractor?
Many leases require it, though the specific requirement depends on the lease terms, so this should be confirmed before selecting a contractor.
Can existing building systems affect tenant improvement costs?
Yes. If the existing electrical, mechanical, or plumbing systems do not support the new tenant's use, upgrading them can add cost beyond the original allowance.
How is a tenant improvement contractor different from a general commercial contractor?
A TI contractor specializes in building out existing leased space under landlord constraints, while a general commercial contractor may focus more broadly on new construction or larger-scale projects.
What happens if landlord design criteria conflict with the tenant's preferred layout?
The tenant typically needs to revise the design to meet the landlord's requirements, which is another reason to review those criteria before finalizing plans or budgets.
Why does involving a contractor before signing the lease matter?
It preserves the tenant's negotiating position to address cost issues, such as an insufficient allowance or a space with expensive hidden conditions, before the lease terms are locked in.
What happens if the actual project cost exceeds the tenant improvement allowance?
The tenant is generally responsible for the difference, which is why an early cost review before lease signing helps avoid an unplanned gap later.