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Steve Hyatt answers: What is a finish-out allowance?

A finish out allowance is also known as a tenant improvement allowance. In most leases it’s borne by the landlord and there’s very important things to factor in, whether it’s first generation shell space or whether it’s previously occupied and second generation space. Your finish out allowance is going to include doors, walls, lighting fixtures, HVAC distribution, sprinklers, carpet, paint, all of the above. It either comes in the form of a work letter or comes in the form of a dollar amount. That dollar amount is a negotiated price between the landlord and tenant.

As a tenant you want to make sure you have the largest tenant improvement allowance that is all-encompassing, so you can get the space built out at your discretion and what you want. That needs to be agreed upon up front. If you go over your tenant improvement allowance, that either comes out of your pocket as a cash payment before you start the lease, or it gets incorporated into your lease rate. The ideal situation is to up front clarify how the landlord is delivering the space and the amount of the tenant improvement’s allowance, and get a very strong comfort level that that tenant improvement allowance will cover the cost of the build out.

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