A Tenant Improvement Allowance, or commonly referred to as the “TI” allowance, is amount of money offered by a landlord to a prospective tenant for the purposes of improvement to the leased space. The amount of money, usually defined in terms of dollars per square foot of the leased premises or a set dollar amount is to be used strictly for the improvements to the leased space and not for the purchase of inventory, etc. by the tenant. Depending upon the needs and desires of both parties this money is often reimbursed to the tenant for work that they have completed or it may be work done by the landlord prior to possession by the tenant. In either case, the parties must be diligent in their coordination of construction schedules and construction crews for purposes of permits, etc.
Please keep in mind that TI allowance is not a given in any lease and is often a point of negotiation. Remember, for every dollar spent by a landlord for the purposes of improving a space for a tenant that landlord will expect to recoup that dollar (and then some!) in rent over the term. That being said, a TI allowance is a useful tool for both parties both allowing a landlord to fill leasable space through the use of incentives and also for a tenant looking to offset some of their start-up costs.