Tenant Improvement Allowance Calculator Formula
Understand the math behind the tenant improvement allowance calculator. Each variable explained with a worked example.
Formulas Used
Total TI Allowance
ti_total = total_allowanceTotal Estimated Buildout
buildout_total = total_buildoutTenant Out-of-Pocket
out_of_pocket = safe_oopAllowance Coverage
allowance_coverage = total_buildout > 0 ? (total_allowance / total_buildout) * 100 : 0Landlord Monthly TI Amortization
monthly_amortization = monthly_amortTotal Amortized Cost to Landlord
total_amort_cost = monthly_amort * num_monthsVariables
| Variable | Description | Default |
|---|---|---|
rentable_sqft | Rentable Square Feet(sq ft) | 5000 |
ti_allowance_psf | TI Allowance (per sq ft)(USD) | 45 |
estimated_buildout_psf | Estimated Buildout Cost (per sq ft)(USD) | 65 |
lease_term_years | Lease Term (years) | 7 |
amortization_rate | Landlord Amortization Rate(%) | 8 |
total_allowance | Derived value= rentable_sqft * ti_allowance_psf | calculated |
total_buildout | Derived value= rentable_sqft * estimated_buildout_psf | calculated |
tenant_out_of_pocket | Derived value= total_buildout - total_allowance | calculated |
safe_oop | Derived value= tenant_out_of_pocket > 0 ? tenant_out_of_pocket : 0 | calculated |
monthly_rate | Derived value= amortization_rate / 100 / 12 | calculated |
num_months | Derived value= lease_term_years * 12 | calculated |
monthly_amort | Derived value= monthly_rate > 0 ? total_allowance * monthly_rate * pow(1 + monthly_rate, num_months) / (pow(1 + monthly_rate, num_months) - 1) : total_allowance / num_months | calculated |
How It Works
Tenant Improvement Allowances
A tenant improvement (TI) allowance is money the landlord provides to the tenant for customizing or building out the leased space. It is a standard incentive in commercial leasing.
How TI Allowances Work
1. The landlord offers a dollar-per-square-foot allowance 2. The tenant designs and constructs improvements to suit their needs 3. Costs within the allowance are covered by the landlord 4. Costs exceeding the allowance are paid by the tenant 5. The landlord amortizes the TI cost over the lease term as part of the return calculation
Typical TI Ranges
Negotiation Tips
Worked Example
5,000 sq ft space with $45/sq ft TI allowance, estimated $65/sq ft buildout cost, 7-year lease, 8% landlord amortization rate.
- 01Total TI allowance: 5,000 x $45 = $225,000
- 02Total buildout cost: 5,000 x $65 = $325,000
- 03Tenant out-of-pocket: $325,000 - $225,000 = $100,000
- 04Allowance coverage: $225,000 / $325,000 = 69.2%
- 05Monthly amortization: approximately $3,493 (at 8% over 84 months)
- 06Total amortized cost: $3,493 x 84 = $293,412
Frequently Asked Questions
Is the TI allowance free money?
No. The landlord factors the TI cost into the base rent calculation. A higher TI allowance typically means higher rent. The landlord amortizes the TI at their target return rate (7-10%) over the lease term. The total cost to you, through higher rent, exceeds the TI amount.
What happens to improvements when the lease ends?
In most leases, tenant improvements become the property of the landlord when the lease expires. Some leases require the tenant to remove certain improvements and restore the space. Always review the surrender clause in your lease carefully.
Can I negotiate a higher TI allowance?
Yes. TI allowance is one of the most negotiable terms in a commercial lease. Leverage includes a longer lease commitment, strong credit, taking a larger space, and competitive offers from other buildings. You can also negotiate a cash allowance in lieu of TI to cover moving costs.
Ready to run the numbers?
Open Tenant Improvement Allowance Calculator