A tenant improvement (TI) allowance is money your landlord contributes toward the cost of customizing your leased commercial space. In Texas's active commercial real estate market, TI allowances are negotiable — and often underutilized by tenants.
What Is a TI Allowance?
A TI allowance is typically expressed as a dollar amount per square foot ($X/sq ft) and is paid by the landlord to offset your buildout costs. It can be paid upfront, as reimbursements, or applied against rent. The structure affects your cash flow significantly — get clarity on the payment schedule before signing.
Typical TI Allowances in DFW
DFW Class A office: $50–$100 per sq ft on 5+ year leases (see office renovation costs per sq ft). Retail strip centers: $20–$50 per sq ft. Industrial/warehouse: $5–$20 per sq ft. Restaurant second-gen spaces: $30–$60 per sq ft (compare typical restaurant buildout costs). These are negotiable — market conditions, lease length, and creditworthiness all affect what a landlord will offer.
What TI Allowances Cover
Most TI allowances can be used for: construction labor and materials, mechanical/electrical/plumbing work, flooring and paint, built-in millwork, and sometimes furniture and fixtures (negotiate this specifically). They typically cannot be used for movable equipment, inventory, or signage.
Three Common Ways Landlords Fund a Buildout
- TI allowance: the landlord contributes a fixed amount per square foot, and you manage (or approve) the construction. Anything over the allowance is your cost.
- Turnkey buildout: the landlord delivers the space built to an agreed plan and spec at its own cost. You have less control over contractors and finishes, and changes beyond the plan are usually charged back to you.
- Rent concessions: free or reduced rent for a period, sometimes instead of or alongside an allowance. It helps cash flow but doesn’t pay the contractor during construction.
A Worked Example
Say you’re leasing 4,000 sq ft of second-generation office with a $50 per sq ft allowance, or $200,000. Using the planning ranges in our office renovation cost guide, a mid-level renovation at $45–$85 per sq ft would run about $180,000–$340,000. At the low end, the allowance covers everything; at the high end, you fund up to about $140,000 yourself — plus furniture, IT and moving, which most allowances exclude. Getting contractor bids before you sign tells you which end you’re really at, while you can still negotiate.
How the Allowance Is Paid Out
Leases handle disbursement in different ways, and the details matter for your cash flow. Many landlords reimburse the tenant after work is complete, or in installments against paid invoices. Common conditions include lien waivers from the contractor and subcontractors, a final Certificate of Occupancy, as-built drawings and proof of payment. If the allowance is paid only at the end, you or your contractor must finance construction until then. Ask your landlord for the disbursement terms in writing and share them with bidders, since they affect the payment schedule a contractor can offer.
Details to Negotiate
- Amount and basis: per rentable or usable square foot, and whether design, permit and cabling costs count against it.
- Eligible costs: whether furniture, data cabling, signage or moving can be paid from the allowance.
- Unused allowance: whether any amount left over becomes a rent credit or simply expires.
- Deadline: how long you have to use the allowance after the lease starts.
- Supervision or management fee: some landlords charge a fee, often a percentage of construction cost, to oversee your project. Negotiate it down or out.
- Contractor approval: whether you can use any qualified contractor or must choose from the landlord’s list.
- Restoration: whether you must remove your improvements at the end of the lease.
A Simple Timeline
- Before the letter of intent: get a planning estimate from the cost estimator and, if possible, a test fit from a designer.
- Before signing the lease: collect contractor bids on the test fit or scope to confirm the gap between allowance and cost.
- After signing: finish drawings, get landlord approval, and pull permits.
- During construction: track spending against the allowance and collect lien waivers with each payment.
- At completion: submit the close-out package your lease requires to release the allowance.
TI Allowance FAQ
Can I use a TI allowance for furniture? Only if the lease says so. Many allowances are limited to permanent improvements; negotiate furniture, cabling or signage specifically if you need them covered.
What if my buildout costs more than the allowance? You pay the difference, unless the landlord agrees to amortize extra improvements into the rent. Knowing your real cost before signing gives you room to negotiate.
Who chooses the contractor? It depends on the lease. Some landlords require their own contractor or an approved list; others let you choose any qualified contractor after approving the drawings.
Maximizing Your TI Allowance
Get competitive bids from commercial contractors before signing your lease — this gives you real cost data for negotiations. Know your total buildout cost before you agree to a TI amount. BidBridge Texas can connect you with verified commercial GCs for free bid estimates before you're locked into a lease.