Tenant Improvements

When a tenant negotiates a lease with a commercial real estate broker one of the items that is addressed is alterations or tenant improvements. What is involved within a lease when negotiating or navigating thru a tenant improvement?  Tenant improvements can encompass changes such as paint, carpet, demolition, building new offices, walls, doors etc.. it all depends on what the tenant need to operate their office efficiently and effectively.

Landlord’s interests?

The landlord in this transaction is not interested in allowing tenants to alter their premises extensively or use paint colors that are typically unusual like purple, black. Within the no-go’s for landlords would be the tenant making major alterations to the permanent fixtures within the office space such as restrooms, , electrical wiring or any tenant improvements that could damage or cause issues with other tenants.  Typically in an office environment, a tenant would use the landlord’s contractors to do the job of improvements.

Tenant improvement interests?

As a tenant you want the flexibility to modify the premises and want the modifications to improve the property’s value for you to use. There may be a provision where the tenant has to provide the landlord the premises back to them in it’s original condition when their lease expires and they vacate.  You will have 4 options or a combination of these when embarking on a tenant improvement negotiation within a lease provision. They are as follows:

Option 1:  The tenant shall make no alterations or tenant improvements without the written consent of the landlord, you will find this standard in office leases within the Austin Texas marketplace.  This does include paint or flooring.

Option 2:  The tenant may make minor alterations to the premises such as paint, wallpaper , or lighting fixtures to suit their needs.

Option 3: As the tenant, all alterations made to the premises become the property of the landlord excluding non permanent fixtures such as lighting as they are not permanently attached to the office space.  A tenant can remove personal property which is not a permanent fixture to the office space.

Option 4: The tenant can make tenant improvements to the property with written consent from the landlord, however the work will be done only by the landlord’s contractors or mechanics approved directly from the landlord. All alterations , additions or improvements shall become the property of the Landlord and shall remain and be surrendered with the premises at the termination of the lease.