Generally, commercial spaces for lease in a building are in an unfinished condition where structural and interior changes are needed before a new business can move into that building space.  These spaces are usually in a vanilla shell with plain walls, basic flooring and a ceiling that needs further alterations or improvements in order to meet the tenant’s business needs and requirements.  These can include a remodeled floor plan, adding walls, adding a reception area, counters, private offices, lighting upgrades, technology upgrades, removing walls, additional  plumbing jobs, new floors, new paint job, and other tenant improvement works.

Commercial improvement construction can be Interior Improvements, Landlord Improvements, or Tenant Improvements.

Interior Improvements are customizations made on a commercial building space according to the tenant’s business needs. It can include alterations to the walls, flooring, ceiling, lighting and other interior related works.

Landlord Improvements are renovations initiated by the landlord to make a building space ready for the next tenant to occupy.

Tenant Improvements are construction works made on a building space that is customized to the tenant’s requirements.  The improvement works are usually managed by the landlord or the tenant depending on what was agreed upon in the lease agreement between the two parties.  However, on almost all occasions, the tenant manages and funds the improvements. 

Tenant improvement works on a commercial space should show off the company’s personality, brand, visions and goals. The business should be able to maximize the use of the building space suited to their needs.  The interior design and lay-out of workstations, color and pattern preferences, floor plans, amenities, multi-purpose spaces, cabinets, furnitures and the likes, should also be able to reflect the company’s core values to its customers or clients as well as impact how employees communicate, work and stay productive.

Tenant improvement construction requires a business to be financially prepared for the costs involved, considering that landlords don’t usually agree to cover for all the construction costs.

Generally, landlords prefer that tenant improvements allowances cover only for hard construction costs.  Hard costs refer to physical improvements on the building space that will be left behind once the tenant leaves, which could be a direct benefit to the landlord. Some examples of hard costs are framing, walls, HVAC system, eclectic, plumbing, doors, windows, paint and carpet.

Landlords may sometimes agree to also cover for soft costs of the improvement works like legal fees, permit fees, architect and lawyer fees and the likes.  As soft costs are usually more beneficial to the tenant than the landlord, it is imperative that these costs are specifically defined within the terms of the lease agreement.

Tenant improvement costs like furniture, fixtures, equipment, data cabling, moving fees and other miscellaneous expenses, which are specific to the tenant needs are not likely to be covered by tenant improvement allowances.  

Nonetheless, improvements that will not be useful or appealing to the next tenant when a tenant leaves will definitely not be an advantage to the landlord and therefore it is expected that the landlord will only be willing to cover for improvement costs that will increase the value of the building.  

With commercial tenant improvements, the total amount and scope of the build out is typically negotiated up front between the landlord and tenant as part of the overall commercial lease agreement, so you will need to take a look at your lease agreement to understand what is available to you.

For small businesses, it’s best to look for spaces that will only need minor improvements but one that suits your needs as a business, and where the landlord agrees that improvements can be managed by the tenant.  

Sometimes, tenant improvement costs are paid upfront by the landlord and are part of the rent throughout the year. Other times, the landlord will negotiate with the tenant for a tenant improvement allowance, where the tenant doesn’t have to pay all or any of the improvement costs. Often, as we mentioned earlier, the landlord will agree to pay only if the improvement works could increase the value of the building or rental rate in the future after the tenant leaves.

In Conclusion

Whether it’s the Landlord or the Tenant managing the tenant improvement construction, one must understand that the work is crucial and therefore hiring an experienced and licensed tenant improvement contractor is imperative for the success of your project. You must ensure that the contractor will be able to guide you throughout the planning, design, cost estimation, and the entire life-cycle of the tenant improvement construction project.

Looking for a contractor for your commercial renovation or tenant improvement services?   

We, at Southeast Gateway Engineering and Construction Corp. are experts in tenant improvement construction. We specialize in Office, Retails and Warehouse space renovations and interior solutions.  

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