A lot of tenants commonly ask, “What is TI and Abatement?” and it’s a good question. Tenants ask because a lot of landlords don’t typically offer it, so it’s unknown what it is. However, it is certainly available in every transaction.
What is TI? Tenant Improvements.
- This is considered money the landlord will spend for the tenant to build out their space
- The more years you sign, the bigger TI you will get
- Theoretically: the costs of TI the landlord spends is amortized back in rental rate, which means the tenant is paying for it over time
- This is a very nice benefit for the tenant to keep cash as a resource, and let the landlord spend cash out of pocket for the space to be built out
Typical build out from raw conditions.
- On the high end, it is around $1000 per foot
- For a doctors office: $80-100 per foot
- For a law firm: $50-60-80 per foot (includes nicer materials)
- For a cheaper firm, it will be a less expensive build out of approximately $35-40 per foot
What is Abatement? Free Rent.
- This is another term for free rent
- Typically, you should get a month of free rent per year on the lease (this is usually given up front)
- For example, a five-year lease equals five months of free rent (the free rent is usually applied at the beginning of your lease)
You should think of your lease negotiation as the landlord having extra money available, and there are different ways you can use it. There are three things money can be spent on in a lease negotiation:
- Lower rent
- Free rent
- Tenant Improvement Dollars
Usually there is a combination of options that gets the landlord the return they want. You cannot have the lowest rent, a lot of TI and an abundance of free rent. You can have some combination of those three and use them however best fits your needs. Remember, these benefits are available when you bring them up in the negotiation!