The tenant improvement allowance is a sum of money provided by a landlord to a tenant to cover the costs of renovating or customizing the leased space according to the tenant's needs. This allowance is typically negotiated as part of a commercial lease agreement and helps make the space more suitable for the tenant's business operations.
Tenant Improvement Allowance. Notwithstanding anything to the contrary contained in the Lease or the Consent or the Amended and Restated Work Letter (as defined in the Consent), the Tenant Improvement Allowance to be provided by Landlord under the Lease, the Consent and the Amended and Restated Work Letter is hereby reduced from $23,465,700.00 to $16,790,488.00.
Tenant and Sublessee acknowledge and agree that the Warm Shell Improvement Allowance and the balance of the funds constituting the Tenant Improvement Allowance have been fully disbursed and Landlord has no further obligation with respect to the disbursement of the Warm Shell Improvement Allowance and the Tenant Improvement Allowance. Landlord and Tenant further acknowledge the Tenant Improvement Allowance is included in the Base Rent amount as amended by this Amendment.
The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of IIP’s Pennsylvania properties by $4.5 million to a total of approximately $8.3 million. As of May 6, 2020, we had funded $5.6 million of the tenant improvement allowance.
The portfolio consists of two retail properties, with one property closing on February 19, 2020 and one property closing on February 21, 2020. The tenant is expected to complete tenant improvements at one of the properties, for which IIP agreed to provide reimbursement of up to $850,000. As of May 6, 2020, IIP had funded approximately $49,000 of the tenant improvement allowance.
Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Tenant Improvement Allowance”) in the amount of $60.00 per rentable square foot of the Premises (i.e., $3,018,300.00, based on 50,305 rentable square feet in the Premises), for the costs relating to the design, permitting, installation and construction of Tenant’s improvements which are permanently affixed to the Premises (the “Tenant Improvements”). Except as otherwise expressly provided in this Tenant Work Letter, Landlord shall not be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as such term is defined below). In no event shall the Tenant Improvement Allowance be used for purposes of constructing improvements in the Premises for purposes of offering space for sublease or for the benefit of a subtenant. A portion of the Tenant Improvement Allowance has already been used to pay for the Preliminary Construction Costs in the Preliminary Construction Costs Amount and, accordingly, is not available for disbursement under this Exhibit C-2. Notwithstanding anything to the contrary in this Tenant Work Letter, Tenant shall expend the Tenant Improvement Allowance for the improvement of the entire Premises to substantially the same level of improvement (which may include open plan design so long as the applicable open plan designed space includes, at a minimum, finished floor, ceilings, lighting and HVAC) as shown on the Final Preliminary Plan (as defined below). Since the Preliminary Construction, Landlord has incurred the Tenant Improvement Allowance Items (as defined below) outlined on Exhibit C-4, which shall be payable out of the Tenant Improvement Allowance.
Disbursement of the Tenant Improvement Allowance.
1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance only for the following items and costs (collectively, the “Tenant Improvement Allowance Items”):
1.1 Payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord, Tenant and their respective consultants (including construction management consultant Sandra Jamme) in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Tenant Work Letter.
Tenant Improvement Allowance—Expansion Premises A. Landlord shall provide to Tenant a Tenant Improvement Allowance of up to $66,605.00 in the aggregate (“Expansion Premises A Tenant Improvement Allowance”) to be applied to hard costs, and, subject to the limitations set forth below, soft costs, incurred by Tenant with respect to the performance of Tenant’s Work in Expansion Premises A (“Tenant’s Expansion Premises A Work”) and to the hard costs and, subject to the limitations set forth below, the soft costs, incurred by Tenant with respect to the performance of Tenant’s Work in Expansion Premises B (“Tenant’s Expansion Premises B Work”, and together with Tenant’s Expansion Premises A Work, collectively “Tenant’s Expansion Premises Work”) provided that requisitions are submitted by Tenant in accordance with the provisions of this Amendment on or before the date that is eighteen (18) months after the Expansion Premises B Commencement Date (the “Expansion Premises Outside Requisition Date”). The costs of Tenant’s Expansion Premises Work shall not include costs arising from any default or from any facts or circumstances that could become a default after applicable notice and cure periods, such as legal fees or bonding costs arising in connection with a mechanic’s lien placed on the Premises or Tenant’s interest therein.
The portion of the Expansion Premises A Tenant Improvement Allowance that may be allocated by Tenant to soft costs of Tenant’s Expansion Premises Work shall be limited to a maximum of twenty-five percent (25%) of the Expansion Premises A Tenant Improvement Allowance.
Notwithstanding the foregoing, if any portion of the Expansion Premises A Tenant Improvement Allowance remains after payment of the hard costs and soft costs of Tenant’s Expansion Premises Work Tenant may apply the remaining balance of the Expansion Premises A Tenant Improvement Allowance to the installments of Base Rent (or portions thereof) payable under the Lease, provided that, on or before the Expansion Premises Outside Requisition Date, Tenant shall notify Landlord in writing of the amount of the remainder of the Expansion Premises A Tenant Improvement Allowance to be allocated to Base Rent (the “Expansion Premises A Rent Allocation”). The Expansion Premises A Rent Allocation shall be credited to the next payable installments of Base Rent (or portions thereof). Landlord shall not be obligated to disburse funds for materials stored off-site.
TENANT IMPROVEMENTS. TENANT shall construct improvements to the Premises (the “Tenant Improvements”) in substantial conformity with the plans and specifications pursuant to the provisions of the Apex Construction Company, Inc. Proposal dated June 8, 2023 (the “Proposal”) attached hereto as Exhibit B. LANDLORD shall provide TENANT with a one-time TENANT improvement allowance in the amount of up to, but not exceeding $50.00 per rentable square foot of the Premises for a maximum allowance of $253,000.00 (the “TENANT Improvement Allowance”) for the costs relating to the TENANT Improvements.
Landlord and Tenant acknowledge that Tenant has been occupying the Existing Premises pursuant to the Lease. Except as specifically set forth herein, Landlord shall not be obligated to construct or install any improvements or facilities of any kind in the Existing Premises, and Tenant shall continue to accept the Existing Premises in its currently-existing, "as-is" condition. Notwithstanding the foregoing, Tenant shall be entitled to a one-time tenant improvement allowance as follows: (i) for the Third Expansion Premises in the amount of $599,505.00 (i.e., $15.00 per RSF of the Third Expansion Premises) (the "Third Expansion Tenant Improvement Allowance"), for the costs relating to the initial design and construction of Tenant's improvements, which are permanently affixed to the Third Expansion Premises (the "Third Expansion Tenant Improvements"), and (ii) for the Existing Premises in the amount of $1,000,000.00 (the "Existing Tenant Improvement Allowance"), for the costs relating to the initial design and construction of Tenant's improvements, which are permanently affixed to the Existing Premises (the "Existing Tenant Improvements") (the Third Expansion Tenant Improvements and the Existing Tenant Improvements shall collectively be the "Tenant Improvements", and the Third Expansion Tenant Improvement Allowance and the Existing Tenant Improvement Allowance shall collectively be the "Tenant Improvement Allowance"). The Tenant Improvement Allowance will be disbursed in accordance with Section 2.2.2 of the Tenant Work Letter attached as Exhibit B to the Second Amendment though Tenant shall not be required to obtain a lien and completion bond or any other form of security, and Tenant shall not be required to restore the Third Expansion Premises to its condition prior to the completion of the Third Expansion Tenant Improvements. The Tenant Improvements shall be constructed in accordance with the terms and conditions of Article 8 of the Original Lease. In no event shall Landlord be obligated to disburse any portion of the Tenant Improvement Allowance subsequent to the date which is twelve (12) months following the Third Expansion Commencement Date (the “Outside TI Date”), nor shall Landlord be obligated to disburse any amount in excess of the Tenant Improvement Allowance in connection with the construction of the Tenant Improvements. No portion of the Tenant Improvement Allowance, if any, remaining after the Outside TI Date shall be available for use by Tenant.
Tenant Improvement Allowance
If and so long as the Conditions of Advance set out below are satisfied, the Landlord shall provide, as an inducement to enter into this Agreement, a tenant improvement allowance (the "Tenant Improvement Allowance"), in the following amount and upon the following terms and conditions:
Amount: $7,500 plus applicable taxes, to be fully utilised by no later than October 31, 2021.
Payment Date: Within Thirty (30) business days after the date that all of the Conditions of Advance have been completed or satisfied.
Payment Method: Direct payment to the Tenant or as it further directs.
Tenant Improvement Allowance (TIA) is a sum of money that a landlord agrees to provide to a tenant to customize or renovate the rental space to better suit the tenant’s specific needs. This allowance often covers the costs associated with improvements like painting, carpeting, reconfiguring walls, or adding structures within the building.
When Should I Use Tenant Improvement Allowance?
You should consider using a Tenant Improvement Allowance when:
Customizing the Space: If the current layout of a rental space doesn’t fit the needs of your business or residential requirements, a TIA can help cover the costs of renovations.
Negotiating Leases: During lease negotiations, a TIA can be an attractive component to offset the costs of setup and improvements, making a lease offer more appealing.
Upgrading Facilities: Businesses that require specific infrastructure or a particular environment for operations, such as technology companies or medical practices, can benefit from using TIAs.
How Do I Write Tenant Improvement Allowance Clauses?
When drafting a clause for a Tenant Improvement Allowance in a lease, consider including:
The Amount: Clearly state the total amount of allowance provided.
Eligible Improvements: Define what types of improvements the allowance can be used for.
Time Frame: Specify the time period within which the improvements must be completed.
Disbursement Method: Explain how and when the funds will be released, e.g., upon completion of work or in stages as proof of expenses is provided.
Approval Process: Detail the necessary steps to get approval for plans and costs before proceeding with improvements.
Example Clause:
The Tenant shall be provided with a Tenant Improvement Allowance of $50,000. This allowance shall be used solely for the purpose of constructing and remodeling the leased premises as per the approved improvement plans. All improvements must be completed within 180 days from the lease start date. The disbursement of funds shall occur in installments upon certification of work progress, with prior approval needed for costs exceeding $5,000 individually.
Which Contracts Typically Contain Tenant Improvement Allowance?
Tenant Improvement Allowances typically appear in:
Commercial Lease Agreements: TIAs are common in leases for office spaces, retail shops, and industrial properties where the tenant is responsible for adapting the space to their needs.
Retail Lease Agreements: Retail spaces often require specific modifications for branding and merchandising, making TIAs a standard component.
Office Leases: Similar to commercial leases but specifically focused on office spaces where configuration changes are frequently needed to accommodate different business operations.
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