Are you looking to lease office space? If so, you’ll need to manage the tenant installation allowance (TIA) usually offered to incoming tenants. Most reputable landlords offer TIAs to tenants willing to provide meaningful lease commitments (3 to 5 years).
TIAs are capital improvements made to premises in order to both improve staff workspace and convey the tenant’s corporate identity to visitors. Capital improvements include things like floor coverings, dry walling, glass partitioning, air conditioning, surface finishes, painting and wallpaper. All non-permanent fixtures are excluded from TIA budgets and are for the tenant’s account.
In most cases, landlords also offer a ‘beneficial occupation’ (BO) component as part of the TIA. BO provides a window of time to the tenant where their fit out is completed without rent being paid to the landlord. This window of time varies and is entirely at the landlord’s discretion, but is usually a period of around a month or two.
As a landlord, you can arrange these components (TIA/BO) in a number of ways, including:
- Offering a TIA in cash, and contractors are then settled on completion of work
- In the most common scenario of the three, the landlord combines the BO period with the TIA. For example, the tenant is given one month rent free plus a cash allowance.
- The entire TIA is provided through an equivalent ‘rent free’ window. For example, the tenant does not pay rent for three months post occupation on a three year lease.
Landlords finance TIAs in a number of ways. In most cases this is worked as the value of one month’s rent per year of lease.Landlords typically use rental deposits as a means of financing TIAs, but with bank and insurance guarantees becoming more prevalent, this type of offset is a less likely option.
Once the TIA has been negotiated, we recommend that you engage more than one spatial planner or designer. By fostering competition to win the contract, you’ll ensure that you maximise your budget and get a quality final product.
Tenants must review the lease agreement, checking for ‘reinstatement’ clauses, as these can prove expensive when caught unawares. For example, demolition of flooring when leaving your premises can be prohibitively expensive and needs to be a consideration when negotiating lease terms.