Tenant improvement allowance

The conditions that decide whether the money arrives

• Deadline to draw. Many leases require the work be complete and invoices submitted within a stated window, often 9 to 12 months from commencement. Permits and long lead equipment routinely blow through that window, and an expired allowance is forfeited.
• Documentation. Lien waivers from every contractor and subcontractor, final certificate of occupancy, and as built drawings are typical. Each is a place the disbursement can stall.
• No default condition. Most forms condition payment on the tenant not being in default. Some go further and condition it on no event that with notice or the passage of time would become a default, which is a much wider net.
• Landlord's construction supervision fee. Commonly 2 to 5 percent of hard costs, deducted from the allowance rather than paid separately.
• What the allowance may be spent on. Landlord forms often restrict it to hard construction costs. Tenants should push to include architectural and engineering fees, permits, cabling, and in some cases moving costs and furniture.

Amortized allowance is a loan

Where a landlord offers additional allowance amortized into rent, that is financing. Confirm the stated interest rate, whether it is payable on early termination, and how it interacts with a kick-out clause or termination option. An unamortized balance accelerating on termination can make a termination right unusable.

Protect the allowance against a change of ownership

An unfunded allowance is a prior landlord obligation, and a lender's standard SNDA carve out disclaims exactly those. If the building sells or refinances mid buildout, the tenant can be left holding a receivable against an entity that no longer owns anything. Ask for an offset right against rent if the allowance goes unpaid, and confirm the estoppel certificate discloses the unfunded balance rather than certifying that the landlord has no outstanding obligations.

In the redline

The allowance article is long and procedural, which makes it a good hiding place. Round over round, watch the draw deadline, the definition of eligible costs, and the default condition. Those three change quietly and each one can convert a negotiated allowance into a number that never gets paid.