What to carry into the decision
- Build a complete project budget before treating TI as a benefit.
- Separate cash allowance, landlord work and rent abatement in the model.
- Compare the allowance on both a dollar-per-square-foot and total-dollar basis.
- Track the funding gap and payment timing as distinct decision risks.
Start with the required premises, not the offered allowance
Define the work needed for the business to open: design, permits, demolition, construction, mechanical and electrical work, accessibility, technology, furniture, signage, equipment connections, project management and contingency. The landlord's allowance is one funding source against that project — not evidence that the project is fully funded.
Create a responsibility matrix that separates landlord base-building work, landlord-delivered tenant work, tenant work and excluded items. An allowance with a high headline rate may be less valuable if it cannot be used for important project categories or is paid only after conditions the tenant cannot meet early enough.
Normalize TI without hiding the tenant's cash requirement
Model the allowance as an incentive and the full tenant project cost as capital. The difference is the tenant capital requirement. This preserves the real cash exposure instead of simply subtracting the allowance from rent and implying that construction risk disappeared.
When comparing spaces of different sizes, review both the per-square-foot allowance and the total dollars. A smaller but more intensive buildout can require more capital even with a higher allowance rate. Also compare when funds are received: a reimbursed allowance may require the tenant to bridge the project cost.
| Input | Decision question | Model treatment |
|---|---|---|
| Allowance | How much is actually available and for what? | Incentive when supportably receivable |
| Landlord work | What is delivered outside the allowance? | Separate value and scope; avoid double counting |
| Tenant project cost | What must be spent to occupy? | Gross tenant capital budget |
| Funding gap | What must the tenant finance? | Project cost less eligible contributions |
| Timing | Who carries cash before reimbursement? | Monthly cash requirement or explicit risk note |
Translate rent and TI onto equivalent economics
A dollar of TI paid near the beginning of the term does not have the same timing as a dollar of rent reduction spread over years. Use a present-value model to compare alternatives, then review the non-financial effect: TI reduces project funding needs, while lower rent can improve ongoing operating cash flow.
In Negotiation Lab, change one term at a time to estimate the TI allowance that would bring a proposal to a target economic cost. Treat the result as a mathematical equivalence, not a prediction of what the landlord should or will accept.
- More TI may matter most when upfront capital is constrained.
- Free rent may help during fixturing or ramp-up, but confirm what costs remain payable.
- Landlord work can reduce execution burden but requires clear scope, standards and completion mechanics.
- A higher allowance can be offset by higher rent or a longer committed term.
Carry the allowance into the Deal Room
Before signing, track the final scope, drawings, approvals, budget, change process, lien or statutory declaration requirements, reimbursement package and payment deadline. Assign an owner and due date to each dependency. The economic value is only realized if the project and payment mechanics are executed.
After the buildout, reconcile the actual contribution, tenant overage and outstanding deficiency work. Keep those facts beside the original model so future renewal or relocation analysis begins with a reliable project history.
Frequently asked questions
Is a higher TI allowance always better?+
Not necessarily. Compare the entire proposal, including rent, term, payment timing, eligible costs, landlord work and the tenant's remaining capital requirement.
How should landlord work be valued?+
Use a supportable project estimate and keep it separate from a cash allowance. Confirm scope and avoid counting the same work in both the landlord contribution and tenant project budget.
What happens if the buildout costs more than the allowance?+
The tenant commonly funds the shortfall unless the documents allocate it differently. Model the full project budget, contribution and contingency before committing.
This guide is general educational information and financial-workflow support. It is not legal, tax, accounting, engineering, environmental, appraisal or brokerage advice. Verify source documents and obtain appropriate professional advice before acting.