TI Allowance and Free Rent: How to Negotiate Them
Tenant improvement allowance (TI) and free rent are the two main concessions in a lease. Both cost the landlord money, so they are often traded against each other and against base rent.
TI allowance
TI is cash the landlord pays toward the tenant's build-out, usually stated per square foot. A 2,000 SF space at $40 per square foot is $80,000.
Key points to settle in the LOI:
- When it is paid. Landlords prefer after opening with lien waivers. Tenants want progress payments during construction.
- What it covers. Hard costs only, or soft costs like architecture and permits too.
- Offset right. If the landlord does not pay, can the tenant deduct it from rent?
Free rent
Free rent is months of abated base rent, usually at the start of the term. Confirm whether the tenant still pays NNN or operating costs during that time. Many landlords require it.
Free rent is different from the build-out period. The rent commencement date is often 90 to 180 days after delivery so the tenant can build. Free rent then starts after that.
How landlords think
Landlords often care more about the face rent than the concessions, because face rent drives the building's value and loan. That means a tenant can often get more free rent or TI in exchange for accepting a higher rent number.
Longer term, bigger concessions
Concessions scale with term. A 10-year lease supports much more TI and free rent than a 5-year lease. If you need a big allowance, offer a longer term.
More in Real Estate
- NNN vs. Gross vs. Modified Gross Leases
- Vanilla Box vs. White Box vs. Cold Dark Shell
- Co-Tenancy Clauses Explained
- Exclusive Use Clauses in Retail Leases
Other guides
This guide is general information, not legal advice. Deal terms vary by market and by deal.